VeriSign reports earnings and domain growth.

VeriSign, which manages the registry for .com and .net domain names, reported a profitable third quarter. The company earned $53.6 million in the quarter, compared to a loss of $201.1 million in the same quarter in 2008.

VeriSign has divested a number of businesses lately, and is focusing on its core businesses, which includes domain registry. At the end of the quarter VeriSign had 94.9 million domains registered in the domain base for .com and .net, which is most of the company’s registry business.

The company has what amounts to a monopoly on .com and .net domain registrations, although a lawsuit challenging that monopoly is working its way through the courts.

VeriSign opted not to raise rates on .com and .net domain names this year. This is the first year in its current contract with ICANN that it has not levied the maximum increase of 7% on .com and 10% on .net. This is likely due to political pressures more than the stagnating economy.

VeriSign says it supports new top level domains, which shouldn’t come as a surprise.

Chuck Gomes, VP of Policy and Compliance, Naming and Directory Services at VeriSign, wrote a post at CircleID about his company’s support of new top level domain names. This really shouldn’t come as a surprise to anyone in the industry for many reasons:

1. New top level domains won’t erode demand for .com, which VeriSign manages. .Com will remain king.

2. VeriSign will make money as a back end registry for new top level domains. Gomes makes this clear in his post:

For registries—like VeriSign—that offer backend services to other registries, the new domain round represents a significant business opportunity. VeriSign is already in talks with several prospective operators of new domains and intends to engage actively in the emerging backend services market.

Gomes also says VeriSign is working to make sure that the applicant guidelines require TLD operators to have the financial wherewithal to ensure a successful rollout of new TLDs:

Given the importance of the registry function, it is also critical that new registries start from a position of financial stability and have clear mechanisms in place to protect registrants in the event of unforeseen events.

This, of course, plays to the favor of VeriSign since it has a big balance sheet.

One of the challenges VeriSign faces with new TLDs is that many other registry providers will undercut it on pricing. That’s because the true cost of running a registry like .com is less than a dollar a domain. But if it offers registry services for that little — like some of its competitors may — then people will call on it to lower .com prices (currently close to $7 per domain).

With .com registration growth slowing, VeriSign needs the short term lift of new top level domains.

3. New TLDs may remove price caps from VeriSign’s management of .com and .net. Gome doesn’t mention this in his post, but I will.

New draft guidebook doesn’t adequately address concerns that VeriSign could hike .com registration prices.

Over the weekend, ICANN released its latest New gTLD Applicant Guidebook with guidelines for the introduction of new top level domain names such as .eco and .shop. Unfortunately, the guidebook still holds a time bomb for owners of existing domain names, such as .com domains, that could force them to pay massive renewal fees for their domains.

What the guidebook allows: Registry operators for new TLDs can essentially choose whatever price they want to offer domain registrations. They must provide 30 days notice of price increases for new registrations and 180 days notice for renewal price increases. Domain owners would then be able to renew their domains for up to ten years at current prices.

How this could be applied to existing domains, such as .com: Existing registrants of domains such as .com mostly don’t care about pricing mechanisms for new top level domain names. The problem is that registry operators for existing domain names have a clause in their agreements with ICANN that says other registry agreements won’t include more favorable terms to other registries than their own contract. This means that VeriSign could push to remove pricing controls on .com domains, making them similar to new top level domain names.

Then they could announce variable pricing and massive price hikes, such as charging Google a billion dollars to renew Google.com. Google could renew at current prices for ten years, and then get hit with a big bill in the 11th year.

This violates an implicit guarantee: This isn’t fair to current domain owners, who registered their domains with the implicit guarantee that ICANN would manage registry contracts in a competitive manner. In other words, they would competitively bid registry contracts based, in large part, on the price registries would charge for their services.

ICANN isn’t listening. So far, people opposed to new TLD pricing have been fighting to restrict pricing in the new agreements. Although almost all comments provided to ICANN about pricing recommend price controls, it is becoming clear that ICANN does not intend to follow the wishes of the broader community, and is instead beholden to the registry operators who will profit from such pricing schemes.

What should be done: That’s OK for new domains, but violates the trust of existing domain owners. The battlefield should be moved to a different solution: force operators of existing TLDs, such as .com, .net, .org, .biz, and .info, to sign an updated registry agreement that adds an exclusion to the “most favored nation” clause. This exception would exclude pricing controls of other registry agreements from being applied to existing registry agreements.

Analysis shows over $2M spent in first half of year on lobbying.

Domain name related companies continue to spend millions of dollars lobbying representatives in Washington, a study by Domain Name Wire shows. The analysis used public records filed with the U.S. Senate to calculate lobbying expenses by domain name companies and other companies regarding domain name issues.

By far the biggest spender is VeriSign (NASDAQ: VRSN), which spent $1.4M in the first half of 2009 on “Domain Name Addressing, Data legislation, Authentication Internet Content Legislation, Internet taxation, Internet e-mail legislation, e-commerce, pfishing legislation (sic)“. However, this number is down from last year when the company spent nearly $3.8M for the full year.

The next biggest lobbying force on Capitol Hill is GoDaddy, which spent $344,000 during the first half of the year. GoDaddy is trying to influence a number of issues, ranging from new gTLDs, the ICANN Joint Project Agreement, targeted online advertising, trademarks and copyrights, patent reform, and whois database privacy.

GoDaddy also formed a lobbying organization called “Internet Domain Name Registrars Coalition” along with Network Solutions and Oversee.net (Moniker) this year. (Update: Oversee.net is no longer a member of this group.)

With a number of big spenders trying to influence internet governance policy, the Internet Corporation for Assigned Names and Numbers (ICANN) is also involved. The non-profit spent $120,000 so far this year for “Internet governance issues including new gTLDs, consumer protection and domain name competition, security and spam, independence from UN/ITU/government capture, post-JPA cooperation with USG, cybersecurity and accountability/transparency. Policies regarding the oversight of Internet’s naming and numbering systems. S.773, Cybersecurity Act of 2009.”

Register.com spent $50,000 to influence “Legislation to authorize the Small Business Administration to assist unemployed individiauls start on-line businesses”. Demand Media spent $60,000 while its eNom division spent $40,000 to lobby about new generic top level domains. Neustar, registry for .biz and .us, chipped in $100,000 for FCC nominations and ICANN issues, while Network Solutions spent $20,000.

Coalition Against Domain Name Abuse (CADNA) and Internet Commerce Association (ICA) continue to invest in Washington. CADNA spent $60,000 to tackle issues related to cybersquatting and ICANN. Some of CADNA’s members also do their own domain name lobbying, including Intercontinental Hotels Group. ICA pulled back this year, spending less than $5,000 each quarter on lobbying.

Other organizations also spent part of their lobbying budget on domain name issues, including HP and United States Chamber of Commerce.

Domain stocks fail to keep up with broader technology index.

The NASDAQ was up 16% in the first half of 2009, but the rally didn’t extend to most domain name companies. Here’s a look at how they fared.

The Winners

Tucows (AMEX: TCX) jumped 27% to 42 cents a share at the close on June 30, 2009. The company stabilized over the period, but the stock jump was aided by aggressive stock buybacks.

AdLINK (DUS: LKI), the parent company of Sedo, saw its price increase in line with the broader tech market at 16%. It closed June 30 at $3.69 a share.

The Losers

Marchex (MCHX) continues its slide, down 42% on the year. The stock closed the first half at $3.39. It was only a few years ago that this stock traded over $20 a share.

Live Current (OTCbb: LIVC) fell 24% from 37 cents to 28 cents per share. The stock traded at over $3.00 per share in early 2008. The company is liquidating domain names to raise capital.

Dark Blue Sea (ASX:DBS) fell to 15 cents per share, down 2 pennies for the year. The stock is thinly traded. The company just issued profit guidance for 2008/09, saying profits would come in at about $1M AUS compared to nearly $4M AUS the prior year.

VeriSign (NASDAQ: VRSN) was doing well until a court decision threw its monopoly of .com domain names into a shadow of doubt. The stock is down 3% for the year.