2016-06-26

News Review: Brexit, ICANN56, Chinese Domainer Advice, $NAME in Play?

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Domain Mondo's review of the past week and look ahead [pdf]:

The headline above gives you an indication of how much there is to cover this week, starting with the most important story first, the Brexit vote in the UK to leave the EU. First thing to note is that while the experts, insiders, and establishment, including news media, financial media, gurus, pollsters, and bookies, got it "all wrong" and are still getting it wrong, (even some leaders of the "Leave" movement were surprised by the outcome), readers of Domain Mondo were given a forewarning of this outcome before voting started on June 23:
The June 23rd referendum on whether UK will leave or remain in the European Union (EU), may be the global watershed event of 2016 and it is in the hands of the voters in the United Kingdom. A lot is at stake beyond just British sovereignty vs. EU bureaucracy in Brussels. Brexit: Will UK Vote to Leave or Remain in the European Union? (emphasis added).
There is a lot more to come in this drama beyond just the voting results. It is now clear that Boris Johnson and David Cameron are "on the same page" and there will be no immediate trigger of Article 50. Instead, the clever British intend to use the leverage of their voter mandate to squeeze the EU aristocracy for concessions that will give the UK almost everything it wants, and a status no other country, in or out of the EU, now has. A lot of money was made this week if you got in and out on the right side of the Brexit trades. For more, start with Day After Brexit Vote Eurocrats Lost, Market Recovery, Path Forward, which has links to the other Brexit posts on DomainMondo.com.

• ICANN56 | Helsinki, Finland, begins Monday June 27, and ends Thursday, June 30, 2016. It will be a new meeting format ("B"- Policy Forum / new meeting strategy) with a focus on  SO/AC/SG/C policy work and outreach. There will be no welcome ceremony, nor high-interest topics, nor public forum, nor public board meeting, nor sponsor exhibition area. The next Domain Mondo post will contain more information with ICANN56 meeting links. On Sunday, June 26, there is an all day CCWG-Accountability Face to Face Open Work Session in Helsinki, 5:30 - 14:00 UTC | time zone converter | local Helsinki time: 8:30 AM - 5:00 PM EET | Agenda here. Participants and observers may attend online via https://icann.adobeconnect.com/hel56-halla and via English audio http://stream.icann.org:8000/hel56-halla-en.m3u or low bitrate http://stream.icann.org:8000/hel56-halla-en-lo.m3u.

• ICANN-commissioned Study Finds Increased Awareness and Trust in Domain Name System | ICANN.org (June 23, 2016): ICANN selected and paid a vendor to produce a largely self-justifying (for ICANN) report that "Finds Increased Awareness and Trust in Domain Name System." Read the report (pdf) for more. On the other hand, if you are interested in the truth, listen to a wise Chinese domainer:
Warning and advice from a Chinese domain investor | coreile.com"... (3) Stick to meaningful .com names as their values will continue to rise.  cn, net, and org are OK as they will survive. But, beware of other ccTLDs and new gTLDs as they can be manipulated by registries and big money funds ..."

•  $NAME in Play? Rightside® Issues Press Release to Respond to Donuts Proposal (NASDAQ: NAME) June 24, 2016: "Rightside Group, Ltd. [rightside.co] ... confirms receipt of an unsolicited, non-binding proposal from Donuts Inc. [donuts.domains] to acquire Rightside's entire registry of [new] generic top-level domains [40 new gTLDs total] and related assets [backend registry services operation?] for $70 million in an all-cash deal. Rightside appreciates Donuts' interest in these assets ... The Company's Board of Directors and management team remain committed to maximizing long-term shareholder value and as such they will evaluate any proposal to determine whether it is in the best interests of the Company and its shareholders" (emphasis and links added). Rightside ($NAME) shares closed down 1% at $9.13 Friday, June 24, 2016.

Assuming this is not a publicity gimmick, one way to look at this is privately-held Donuts is offering (70/40) $1.75 million per new gTLD, and related assets, which is more than the $1.25 million per new gTLD that Daniel Negari, CEO of  XYZ.COM LLC, offered in this blog post for just 4 of Rightside's "under-monetized new gTLDs (generic top level domains)." XYZ's offer was not accepted by Rightside. None of Rightside's new gTLDs have set the world on fire. Rightside's brands include Namejet (co-owned), Name.com, and eNom (2nd largest registrar) registrar services.

I have not done an in-depth analysis of this offer nor Rightside's ($NAME) valuation, but current market capitalization of $NAME is $175,296,831. Strip out the new gTLDs and related assets, and Donuts, in essence, is valuing $NAME's remaining assets (registrar services and ownership interest in Namejet) at $105 million (based on current share price). If Donuts has sufficient cash, it could leverage its cash with debt or participation by others (e.g., hedge funds, private equity), to buy all of Rightside and then sell or spin-off the non-newgTLD assets (Namejet and registrar services eNom, Name.com).

In terms of total number of new gTLDs, Donuts is the largest new gTLD registry operator (almost 200 new gTLDs now available), and utilizes Rightside's backend registry services, giving it a compelling need to buy all of Rightside's new gTLDs operation (which Rightside wouldn't otherwise sell off in pieces). Donuts' clear frustration with Rightside management can be read in the Donuts press release. Rightside has been losing money, see Rightside $NAME Q1 2016 Earnings Webcast, May 10, 2016, but with "over 16.6 million total domains under management as of March 31, 2016, including over 2.9 million domain names registered through its retail outlets, Rightside remains one of the world's largest registrars." As Donuts pointed out, its "all-cash offer of $70 million represents approximately 40% of Rightside's current market capitalization to acquire assets that contribute approximately 5% of its [Rightside $NAME] revenue."  Donuts further noted, Rightside pays approximately 43% of  its registrar's revenue to VeriSign (.COM, .NET), and earns approximately 20% of its registry's revenue from registrar competitor, GoDaddy.

As a publicly traded company, Rightside ($NAME) is vulnerable to a hostile takeover. The majority of Rightside shares are held by institutional shareholders (55.94%), of which the 3rd largest shareholder is activist investor J. Carlo Cannell (Cannell Capital LLC), who earlier this year wrote to Rightside's Board Chairman"... NAME [Rightside] is holding back the growth potential of your registrar by pushing garbage extensions [new gTLDs] to a user base that quietly knows better ..." The directors of a publicly traded company owe fiduciary duties (pdf) to maximize shareholder value.

Since Rightside management has not indicated a willingness to spin-off or sell $NAME's new gTLDs and backend operations, one or more aggregate offers for the whole company, at a premium over the current market price, might be necessary for Donuts to acquire the specific parts it wants. The possibilities of where this might lead are endless. Every player in the domain name industry may want to take a look at this, including even Verisign (as a financing source for the acquirer of the registrar operations since it is prohibited from running a registrar operation).

This could turn into the "deal of the year" in the domain name industry with more than one buyer dividing up "the spoils." [Disclosure: In accordance with Domain Mondo's Disclaimer policy, I do not have any current position, long or short in Rightside shares ($NAME), but may take one or more positions, long or short, in the near future.] UPDATE June 27, 2016: See this June 27th article by Bram de Haas: Donut Panic! - Rightside Group, Ltd. | SeekingAlpha.com and also my News Review [Jun19]: ICANN, New gTLD Domain Names, Consumer Fraud which specifically deals with the paper Mr. Haas cites as proving "the value of gTLDs." UPDATE July 3, 2016: See [News Review 03 July 2016]--$NAME in Play? follow-up.   

 In the IANA Stewardship Transition proposal, a new, separate legal entity, Post-Transition IANA (PTI) is to be formed as an affiliate of ICANN, to perform the IANA functions post transition. The following graph is an excerpt from the draft Implementation Plan currently under review at ICANN, to depict the post-transition state:
Excerpt from the draft IANA Transition Implementation Plan currently under review at ICANN
•  IANA Stewardship Transition Implementation Planning Update (Volume 3) | ICANN.org: 20 June 2016: "Root Zone Maintainer Agreement (RZMA) Status update: ICANN and Verisign are working to finalize the last outstanding details of the RZMA. The agreement will be posted for public review once it is finalized."

•  ICANN and Diversity, AFNIC report (pdf)--Afnic reveals figures on diversity within ICANN | afnic.fr--No surprises here, ICANN is made up mostly of English-speaking, North American, males, and "Europe, Australia and New Zealand also benefit from strong representation." Unfortunately, the report doesn't even mention the fact that the vast majority of domain name registrants don't have any stakeholder group representation in the GNSO, while corporations have two stakeholder groups in the GNSO--IPC and Business Constituency. But of course we all know ICANN's GNSO is broken and out-of-balance.

The AFNIC (France) report, also points out "the predominance of English speakers is very strong with almost 2/3 of ICANN leaders having English as their mother tongue, which differs greatly from the global population." However, what the report does not note is that unlike any other language in the world today, there are now many more non-native English speakers than native English speakers (by a 3 to 1 ratio according to linguist David Crystal), and that will most likely continue for the foreseeable future. Adding native + non-native speakers, English is the most commonly spoken language in the world, yes, even more than Mandarin (which has the largest number of native speakers).

 9:00 a.m. Tuesday, June 28, 2016 is the deadline given for  NTIA's Larry Strickling to respond to the June 21, 2016, letter (pdf) from U.S. Senators Cruz, Lankford, Lee and Congressman Duffy, "regarding your agency’s apparent violation of federal law in using federal funds to relinquish its responsibility with respect to Internet domain name system functions, including responsibility with respect to the authoritative root zone file and the Internet Assigned Numbers Authority functions."

•  U.S. Secretary of Commerce Penny Pritzker Stresses Importance of an Open Internet to Economic Growth, Free Expression in Remarks at the OECD Ministerial Meeting | Commerce.gov"The strongest voices for government control often come from countries that censor content and limit access to information. The Internet is the greatest platform for free expression and innovation ever known. Shifting control to an international governmental body would leave the Internet vulnerable to geopolitical disputes and endless bureaucratic delays. It would also chill innovation and slow the expansion of Internet access worldwide – depriving billions of people access to the currency they need to thrive in the 21st century. We must ensure that the Internet remains accountable not to governments, but to the people, consumers, institutions, and companies who depend on it. Our Administration is committed to this transition." (emphasis added)

• The most popular country-code (ccTLD) top-level domains under the Uniform Domain Name Dispute Resolution Policy (UDRP) is .CO, ccTLD for the nation of Colombia in South America. Why? "The answer is probably obvious: .co is the top-level domain name that is most similar to .com," says attorney Doug Isenberg, read more: The Popularity of .co (not .com) Domain Name Disputes | circleid.com.

• Are there too many new gTLDsfree market should take care of that, but it will take time, provided ICANN sticks to its original plan to "let the market decide winners and losers" which, unfortunately, ICANN GDD President Akram Attalah and his staff are now trying to subvert by changing policy and "granting fee waivers" to failing new gTLDs--see comments to ICANN's proposed Registry Agreement change. This is basic economics: 
"[A]re there too many products? The market eventually manages to sort out and clear away those funds that investors deem unnecessary. It may take a long time, as we have seen with the abundance of actively managed funds that are overpriced and underperform ..."--Wall Street Tries Out Lots of Shiny New Objects | Bloomberg.com
Once ICANN chose to unleash over 1000 new gTLDs onto a market of less than 20 gTLDs available for public registration, there were bound to be failures, and consolidation of the industry. The losers, other than the failing new gTLD registry operators, will be the domain name registrants who pick the "wrong" new gTLD domain extension for registration of their business name. But, as I said last week, ICANN doesn't care about end users, consumers or domain name registrants. For ICANN, and its new gTLD 'partners,' "it's all about the money."

•  ICANN Loses Again in new gTLD AFRICA litigation: On June 20, 2016, the U.S. District Court denied ICANN's motion for reconsideration of the Order enjoining ICANN from delegating new gTLD .AFRICA. Read more here.

•  Turkey's internet censorship"The Venice Commission of the Council of Europe (CoE) has recommended that Turkey’s government review its law on the internet which allows its telecommunications authority to block websites for “illegal or unsafe” content such as piracy, pornography or terrorism without any authorization from the government or a legal office..."--Venice Commission urges Ankara [Turkey] to review internet code | hurriyetdailynews.com.

•  Weak Corporate Governance is a problem, and not just at ICANN: My Problem With Alibaba (NYSE:BABA) | SeekingAlpha.com"Perception that company attempted to hide rumors of counterfeiting points to transparency issues that are indicative of larger corporate governance issues. Weak corporate governance is preventing Alibaba from being a great stock to own." $BABA, domains include: AlibabaGroup.com; Alibaba.com.

•  Five most popular posts (# of pageviews Sun-Sat) this week on DomainMondo.com:
 Other Reading Recommendations:
  1. A green light for police: The Supreme Court weakens the guarantee against unreasonable searches | Economist.comAmerica’s Bill of Rights bars “unreasonable searches and seizures”. As a result, when police obtain evidence of a crime through illegal means, that evidence is inadmissible in court. But a 5-3 Supreme Court ruling introduces a loophole which could allow police to stop someone on no grounds, check for existing warrants and then legally conduct a search. This interpretation is bad for liberty and will disproportionately affect minorities. 
  2. Guardian Media Group to cut 250 jobs in bid to break even within three years | Media | TheGuardian.com"Print advertising fell sharply in the year by an estimated 25%, and although the Guardian beat this market average, the decline was not offset by digital revenues."
  3. 3 Leaders at the Metropolitan Museum of Art Step Down | NYTimes.com"the Met’s digital team will specifically focus on digitizing its collection for a global audience. “The only way for the Met to succeed in the future is to continue to build the connection between the physical and the digital,” Mr. Sreenivasan said."
  4. How Many Law Schools Need to Close? Plenty | charleshughsmith.blogspot.com"The only solution for the surplus of workers with law degrees is a massive, permanent reduction in the issuance of new law graduates."
  5. Hackers would like to join your LinkedIn network - and you'd probably accept them | ZDNet.com
  6. Can a Social-Media Algorithm Predict a Terror Attack? | technologyreview.com"... Neil Johnson, a physicist at the University of Miami, and his team focused on a Russia-based social platform called VKontakte [vk.com], which boasts 360 million users worldwide ..."
  7. How To Brainstorm Like A Googler | FastCompany.com"... we’ve created a linear process for brainstorming new ideas and turning them into actual products: 1) Know the user 2)Think 10x 3) Prototype"..."
  8. A new chapter in YouTube’s live stream | youtubecreator.blogspot.com"... YouTube mobile live streaming will be baked right into the core YouTube mobile app. You won’t need to open anything else, just hit the big red capture button right there in the corner, take or select a photo to use as a thumbnail, and you can broadcast live to your fans and chat in near real time ..."
Have a great week!

-- John Poole, Editor, Domain Mondo


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