New .com contract could see ALL domain prices go up

Verisign will retain its power to increase .com prices by 7% a year, and prices in other gTLDs could well go up too, under a new proposed registry contract designed to help patch up ICANN’s budget.

The proposed .com Registry Agreement was posted for public comment this evening, and the pricing terms within could have broad implications for all registrants of gTLD domains.

For starters, as usual the deal lets Verisign raise .com prices, currently $10.26 a year, by 7% in the final four years of the six years of its term. This is an option Verisign has never failed to exercise in the past.

But the deal would also give ICANN the power, in its sole discretion, to raise the per-transaction fees Verisign pays it for each added, renewed, or transferred .com domain, in line with the latest US inflation numbers.

The fee is currently $0.25 per transaction, and it hasn’t gone up ever, as far as I recall.

The proposed text on inflation is pretty much the same as found in all post-2012 gTLD Registry Agreements, but adds a clause saying that ICANN cannot raise the .com fees unless it also raises fees in “multiple other registry agreements”.

Yet another clause strongly suggests that ICANN intends to exercise its existing right to increase its fees, again according to the US Consumer Price Index, across other gTLDs — presumably all of them — rather soon:

ICANN and Registry Operator hereby agree that if ICANN delivers notice of a fee adjustment to other registry operators after November 1, 2024 and prior to the Effective Date, ICANN may concurrently deliver such fee adjustment notice to Registry Operator, in which case the provisions of Section 7.2(d) shall be deemed to have applied at the time such notice was sent.

Translated, this means that ICANN can put Verisign on notice that its fees are going up even before the contract is signed, but only if it also raises the fees on other registries at the same time.

It’s difficult to imagine why this language is there unless it’s describing something ICANN is actually planning to do.

Unlike Verisign, other gTLD operators do not have regulated pricing, so any ICANN fee increase on them could very well be passed on to registrars and ultimately registrants with increased wholesale prices.

The new contract is being proposed a few months after ICANN laid off staff because its budget was $10 million light, and CEO Sally Costerton said the Org was “evaluating ICANN’s fee structure to ensure it scales realistically with inflation”.

Verisign, and .com in particular, is ICANN’s biggest single source of funding, contributing $47.3 million of its $145.5 million in revenue in its last fiscal year.

The proposed new .com contract and public comment opportunity can be found here.

ICA finally comments on .com pricing talks

With the latest public debate about whether Verisign is ripping off registrants with its .com pricing now into its third month, one voice has been conspicuously absent.

But the Internet Commerce Association, which represents domain investors and domaining registrars, has now publicly called for .com wholesale fees to continue to be capped and Verisign’s profit margins to be tempered.

Issuing a statement late last week, the ICA revealed that it has participated in talks with the US National Telecommunications and Information Administration regarding its upcoming renewal of the .com Cooperative Agreement.

ICA said it is “encouraging NTIA to focus on ensuring that price caps have some relation to both the cost of operating the .com registry and a reasonable, if not healthy operating margin”, adding:

We believe that it in the absence of actual competitive market forces determining price, it is crucial that an economic study be conducted to determine what a reasonable price would be for .com registrations, having regard to the costs of operating the .com registry on behalf of ICANN while also taking into consideration the need to make a reasonable profit from the exclusive license. As a trade association focused on Internet commerce, although we are generally uncomfortable with determining prices by any method other than via a competitive marketplace, this method is the next best thing in the circumstances.

The statement completely ignores Verisign’s attempt to preemptively flip the debate on its opponents when it recently claimed that the true price gouging occurs in the “unregulated” retail and secondary markets.

The .com pricing debate first came back into the public sphere in July, when three campaign groups called on NTIA to cancel the Cooperative Agreement and allow the .com registry contract to be open for competitive bidding.

The agreement, terms of which routinely make their way into ICANN’s Registry Agreement with Verisign, allow the company to raise prices 7% in four of each six-year term, options Verisign habitually exercises.

The result is a .com registry that generates the company operating margins in excess of 60%, returning mountains of cash to investors.

Three Republican lawmakers then raised the issue with NTIA and NTIA later said that it intended to renew the Cooperative Agreement, but that it had invited Verisign to talks focused on pricing.

In apparently coordinated statements, both parties said the talks would also extend to pricing in the retail channel and secondary market, which should have made ICA members nervous.

Verisign even put out a lengthy statement calling out registrars and domain investors for selling .com domains at hugely inflated prices, conveniently ignoring the facts that the registrar market is genuinely competitive and that domainers shoulder the risk that the domains they pay annual rent to Verisign for very probably will not ever sell.

Verisign’s arguments are sufficiently flawed that it’s perhaps surprising on the face of it that ICA’s new statement completely fails to address or challenge them.

The fact that Verisign is prepared to throw its most dedicated customers under the bus without too much fear of retaliation — something it does every time .com pricing comes up for debate — is perhaps indicative of its market power.

It’s the only dealer in town, and it knows it can say whatever it wants about the crackheads who frequent its corner.

US could change .com pricing terms

The US government and Verisign are to enter talks about possible changes to .com pricing.

The National Telecommunications and Information Administration has told the company that it “intends to renew its Agreement with Verisign” but said it welcomed Verisign agreeing to talks that “may include an amendment to the pricing terms”.

The news came in an exchange of letters between NTIA assistant secretary Alan Davidson and Verisign chief Jim Bidzos over the weekend, published last night. Davidson wrote:

NTIA has questions related to pricing in the .com market. We are therefore pleased that Verisign has agreed to discussions regarding .com pricing and the health of the .com ecosystem, including retail and secondary markets. The parties will discuss possible solutions that benefit end-users, both businesses and consumers, and serve the public interest

The Cooperative Agreement between NTIA and Verisign gives the company the right to raise prices by 7% in four of the six years of its term, all of which Verisign exercised in the current run, which ends in a couple months.

The price-rising powers were frozen under Obama administration but reinstated under Trump, giving Verisign masses of extra revenue and huge profit margins, even as .com volume numbers took a prolonged dive.

NTIA’s intervention follows letters from three campaign groups calling .com a “cartel” and inquiries from three Congresspeople.

In response to NTIA’s letter, Bidzos wrote:

We have observed that our capped .com price increases have not always been passed through to benefit end-users and therefore we welcome an opportunity to have this important discussion. We are prepared to consider structures to address this and other issues, including ways to make .com pricing more predictable for the channel as part of it.

It’s clear from this rather tense exchange that the two parties might not exactly see eye-to-eye on their desired outcomes.

Verisign’s position recently has been that .com volumes have been falling in large part because of what Bidzos called the “unregulated retail channel” pumping up prices to increase profit-per-domain over domains under management.

He also pointed out in the company’s most-recent quarterly earnings call that the average price of .coms on the secondary market is $1,600, or 166x the wholesale price.

As some have pointed out, Verisign complaining about profiteering in the channel is the height of chutzpah, given its own mouth-watering margins, which appear to be what it seeks to protect more than anything else.

If Verisign reckons the registrar business is so great, why hasn’t it launched a registrar of its own yet? The company has been legally permitted by the Cooperative Agreement and its ICANN contract to do so for years.

Verisign predicts more gloom as registrars shun .com growth

Verisign has yet again massively downgraded its expectations for .com growth, after it lost almost two million domains in the second quarter.

The company said it had 170.6 million .com and .net domains at the end of June, down 1.8 million compared to Q1 and a 2.2% decrease compared to a year earlier.

CEO Jim Bidzos said Verisign now expects the domain name base for the full year to be between -2% and -3%. That compares to a range of between +0.25% and -1.75% predicted in April and +1% to -1% predicted in February.

The Q2 renewal rate is expected to be 72.6% compared to 73.4% a year ago and 74.1% in Q1.

Bidzos said he does not expect the base to return to positive growth until the second half of 2025.

Bidzos, talking to analysts, acknowledged that Verisign’s wholesale .com price increases “may have had an impact” but put the blame for the growth shortfall squarely on what he called the “unregulated retail channel” in the US.

American registrars have been cranking up their prices in order to prioritize average revenue per user over volume, he said, meaning retail prices for .com have gone up “more than twice” Verisign’s own price hikes, leading to fewer sales as a result.

“Our research shows that the benefit from our capped wholesale prices is not always passed on to consumers,” he said.

He faced a barrage of questions from analysts about recent calls for the US government to sever its ties with Verisign over .com and put the TLD out for competitive rebidding, but reiterated the company’s position that if the government cuts it off, it still gets to run .com under its contract with ICANN.

Despite the volume woes, Verisign continues to be a high-margin cash-generating machine.

The company reported Q2 net income of $199 million, up from $186 million a year ago, on revenue up 4.1% at $387 million. Operating income was up to $266 million from $249 million and operating cash flow up to $160 million from $145 million.

Republicans quiz NTIA on Verisign .com renewal

Three Republican members of the US House of Representatives have raised the specter of Verisign having to compete to renew its .com deal with the US government.

In a letter to the National Telecommunications and Information Administration, the Congresspeople ask whether NTIA has made any efforts to renegotiate or obtain public feedback on its contract with Verisign.

They also ask whether NTIA has looked at the “effect of the recent price increases implemented by Verisign on the .com domain name marketplace” and “the impact of potential registration price increases on the .com domain name market”.

The Cooperative Agreement between NTIA and Verisign is what allows the company to raise .com wholesale fees. That power was frozen for years under the Obama administration but returned under Trump.

The letter follows missives from three campaign groups a month ago, which called Verisign, NTIA and ICANN a “cartel” that enables Verisign’s monopoly and called for the .com contract to be put out to bid.

The Congresspeople’s letter doesn’t come anywhere close to asking for the same, but it does cite previous instances where legislators and the Department of Justice have called for a competitive bidding process.

Verisign has responded to earlier letters by pointing out that even if NTIA were to cancel the agreement, the .com Registry Agreement with ICANN would still stand.

The letter (pdf) is signed by House Energy and Commerce Committee chair Cathy McMorris Rodgers, Subcommittee on Communications and Technology chair Bob Latta, and Subcommittee on Oversight and Investigations chair Morgan Griffith.

The Cooperative Agreement is set to auto-renew in November. The Congresspeople want answers from NTIA before August 8.

Groups make flawed case that .com is a cartel

Three pressure groups in the US have called on the government to strip Verisign of its .com contract, saying the company is operating as a “de facto cartel” with ICANN that has allowed its shareholders to milk the public for billions.

But their argument has a pretty significant hole in it, based on an apparent misunderstanding of how Verisign funds ICANN.

The American Economic Liberties Project, the Demand Progress Education Fund, and the Revolving Door Project have written to the Department of Justice and National Telecommunications and Information Administration to demand that they “cut off” Verisign.

The NTIA is the third party in the triumvirate with ICANN and Verisign that controls who gets to run the immensely powerful .com TLD. It’s the NTIA that gets to decide whether Verisign is able to raise its registry fees, how often and by how much.

The Obama administration froze the fee for its last six-year run, but the caps were lifted under Trump, giving Verisign four 7% increase options over the current six-year deal, all of which it has chosen to exercise.

The price of a .com registration or renewal has gone up from $7.85 in 2018 to $10.26 later this year. Verisign enjoys some of the highest profit margins of any public company in the US as a result, with much of its cashflow diverted into share buybacks.

This has to stop, and the .com contract should be open for bidders, the three groups said in their letters:

Ending this contract will force the initiation of a competitive open-bidding process, ultimately bringing down costs for those who must register a domain name. ICANN and VeriSign function as a de facto cartel and the NTIA should stop sanctioning the “incestuous legal triangle” that serves as a shield to deflect overdue antitrust scrutiny into their otherwise likely illegal collusive relationship.

While the letters raise many good points, they’re the same good points that have been raised every few years for the last quarter century. The US government response seems to depend entirely on whether the current occupant of the White House wears a blue tie or a red tie.

Where the argument is flawed is in the statement: “ICANN has a vested interest in VeriSign making as much money as possible, as VeriSign pays ICANN for each annual domain name registration.”

This is not quite correct, as ICANN’s current financial problems can attest.

In reality, while it is true that Verisign is by far the biggest contributor to ICANN’s budget, the dollar value is tied not to how much money Verisign makes, but to how many registrations and renewals it processes.

ICANN gets a quarter for every domain-year, basically, regardless of whether Verisign charges $7.85 or $10.26, so ICANN’s vested interest is in Verisign selling as many domain-years as possible, not its bottom line. If .com shrinks, so does ICANN’s budget.

And that’s exactly what has happened over the last couple of years. As Verisign’s prices have gone up, volume has started to go down, first in China and more recently in the US.

While I don’t believe the company has explicitly linked its volume decline to its price hikes, it’s said that a solution to the problem is new promotional activities later this year, so draw your own conclusions.

ICANN’s budget has taken a hit as a result. The Org said in April that it was looking at an $8 million shortfall and last month said it was laying off 7% of its staff to try to save $10 million.

The fact that it’s just canned 33 staff is pretty decent argument against the cartel claim, and I expect it to form part of ICANN’s response.

The three groups’ letters may be on more solid ground with its claim that ICANN has enjoyed a “$20 million cash bonus” that they describe as a share of Verisign’s “ill-gotten rent to maintain its market power.”

That’s a reference to the $5 million a year for five years additional payment that Verisign agreed to when it renegotiated its registry contract with ICANN in 2020.

Nominally to help fund ICANN’s DNS “security and stability” efforts, the optics of this side deal have always been terrible, the granularity of the accounting transparency has been criticized as lacking, and I’ve frequently referred to the payment as a “bung”.

But that payment is strictly bilateral and not part of Verisign’s deal with NTIA.

The NTIA arrangement has presumptive renewal of six-year terms, but NTIA can revoke it with 120 days notice. That means it will have to act before August 2 if it decides to terminate Verisign’s contract.

You can read the letters in full here.

GoDaddy price increases lead to revenue growth

GoDaddy last night reported domains revenue ahead of forecasts after it raised its prices and sold more higher-priced domains on the aftermarket.

The company’s Core Platform segment, which includes domains and hosting, reported first-quarter revenue up 4% compared to a year ago at $725 million, with domains revenue driving growth, up 7% percent to $532 million.

Domains under management was 84.6 million at the end of March 31.

“Our growth was driven by strong demand for domains in the primary and secondary market, increased pricing in the primary market and a higher average transaction value in the secondary market,” CFO Mark McCaffrey said in prepared remarks.

Aftermarket revenue was up 12% to an unspecified amount.

Including the company’s other revenue streams, GoDaddy reported net income of $401.5 million on revenue up 7% at $1.1 billion.

Verisign, the .com registry, last week reported stagnating .com growth that it blamed in part on US registrars raising their retail prices, leading to lower first-year sales and renewals.

.com still shrinking because of China

Verisign’s .com gTLD shrunk by over a quarter million domains in the first quarter due to softness in China and US registrars’ pesky habit of putting up prices and the pain is likely to continue for the rest of the year, according to Verisign.

There were about 159.4 million .com domains and 13.1 million .net domains at the end of March, down a combined 270,000 from the end of 2023, Verisign said during its first-quarter earnings call on Thursday. Most of the decline appears to be in .com.

Registrations from Chinese registrars, which are about 5% of the total, were down about 360,000 in the period. Not ideal, but a lot less sharp of a drop than the 2.2 million it lost in Q4.

There were 9.5 million new registrations across both zones in the quarter, compared to 10.3 million in the year-ago period.

But CEO Jim Bidzos told analysts that competition from low-priced new gTLDs, some of which sell year one for under a dollar, is likely harming .com’s growth among cost-conscious Chinese registrants.

But he said the company is also seeing “softness” from US registrars, which he said are increasingly focused on increasing average revenue per user and putting up retail prices. This leads to fewer new registrations and renewals.

Bidzos said Verisign expects to introduce new marketing programs in the second half of the year — around the same time as the company’s base .com wholesale fee goes up from $9.59 to $10.26 — to help offset these declines.

The renewal rate for Q1 is expected to be about 74% compared to 75.5% a year ago. Bidzos said the total domain base shrinkage could be worse in Q2 due to the larger number of names coming up for renewal.

The company lowered its guidance for the year to between 0.25% growth and negative 1.75%. In February, it had guided flat, with a 1% swing in either direction.

Verisign’s top and bottom lines continue to grow during the quarter, with revenue up 5.5% at $384 million and net income up from $179 million to $194 million.

.com is shrinking but Verisign raises prices again anyway

Verisign has confirmed that it plans to exercise its fourth and final .com price-increasing power under its current registry contract, even as its domains under management continues to head south.

The company confirmed last night that it will increase the annual registration and renewal wholesale fee for a .com domain from $9.59 to $10.26 on September 1 this year. It’s the last of the four times it’s allowed to raise prices by up to 7% in its current contract with ICANN, which expires in November.

The news came as Verisign reported its fourth-quarter and full-year 2023 financial results, which were as profitable as we’ve come to expect.

But in terms of domains under management, .com and .net continued to decline, which CEO Jim Bidzos told analysts was all China’s fault. Domains managed by Chinese registrars shrank by 2.2 million in Q4, leading to an overall .com/.net shrinkage of 1.2 million names.

There were nine million new .com/.net registrations in Q4, down from 9.7 million in the same quarter in 2022.

Bidzos said the decline in China was due to factors such as stricter local regulations and a weaker economy, and said he expects those challenges to continue to hit Verisign’s numbers in 2024. He did not blamed higher prices for the drop.

Indeed, the .com zone file has been shrinking by about 1,500 domains per day on average since the start of the year. Zone numbers are usually a reliable predictor of DUM trends.

Revenue from China was down about $14.4 million, CFO George Kilguss said.

Bidzos said Verisign expects its DUM to be flat this year, with a possible 1% swing either way.

For Q4, the company reported revenue up 3% year over year at $380 million, with $265 million net income, up from $179 million a year earlier.

For the whole of 2023, revenue was up 4.8% at $1.49 billion and net income was $818 million, up from $674 million in 2022.

Domain universe grows despite .com drag

The number of registered domain names in the world grew by 2.7 million in the third quarter, despite market-leading .com shrinking, according to Verisign’s latest Domain Name Industry Brief.

There were 359.3 million domains across all TLDs at the end of September, according to the DNIB. up from 356.6 million at the end of June.

Over the same period, .com shrunk by half a million names as Verisign faces challenges from exposure to erratic demand from China.

New gTLD volumes were up by 2.1 million names to end the quarter at 30.2 million. Judging by zone files, at least half of these new names seem to be cheap, low-quality regs in the likes of .top and .cfd.

Total ccTLD names were 138.1 million at the end of the quarter, up by a million. All of the top 10 ccTLDs grew or were flat, except .uk, which lost about a hundred thousand names.