Pacific Island Hits Internet Letters Jackpot

The tiny Pacific island nation of Tuvalu, population 10,600, for years has survived by selling stamps, fishing licenses and collecting foreign aid. But thanks to an alphabetic quirk, the country has been the target of an Internet bidding war as companies vie for the right to sell Internet names and electronic mail addresses ending in Tuvalu’s country code, “.tv.”

The deal ultimately went to a firm backed by Idealab, the Pasadena Internet business incubator responsible for online retailer EToys and free Internet service provider NetZero.

Idealab’s new start-up, called DotTV, recently agreed to pay Tuvalu (pronounced too-VAH-loo) $50 million in royalties--or about three times the country’s gross domestic product--over the next decade so it can sell electronic mail and Web addresses ending in .tv instead of the ubiquitous “.com.”

Idealab figures DotTV can make hundreds of millions, and perhaps billions, by selling Web sites such as “www.Law&Order.tv;” and “www.ABC.tv.” Networks and TV programs are primary targets, but DotTV expects .tv to appeal to all sorts of companies, organizations and individuals.

The company thinks most of its .tv names will sell for several thousand dollars apiece, but some could go much higher. The current record price for an Internet address is held by Business.com, which was sold by a Texas firm last year for $7.5 million.

Some observers already doubt that DotTV can create an instant gold rush for .tv Web addresses. “What people have gotten used to saying, hearing and typing is ‘dot-com,’ ” said James Korris, executive director of USC’s Entertainment Technology Center. “For most people, dot-com means a Web address. With all due respect to the people of Tuvalu, I’m not sure it’s an idea that’s going to take.”

What is clear is that DotTV’s minimum payment of $1 million each quarter to Tuvalu makes this the nation’s single-largest source of income. The country expects to spend its windfall on health, education and transportation.

“We were very, very, very poor, but now we are getting some money from the marketing of assets like .tv,” said Koloa Talake, a 60-year-old member of Tuvalu’s parliament, who helped negotiate the Idealab deal and holds a seat on DotTV’s board of directors. But, like most of his countrymen, he has never seen a Web site.

Tuvalu is a collection of nine atolls halfway between Hawaii and Australia that together are a little larger than Los Angeles International Airport. The Polynesian country, which gained its independence from Britain in 1978, has no natural resources except fish. It has poor infrastructure and attracts fewer than 1,000 visitors each year. The Lonely Planet travel guide hails Tuvalu as a place to “sit under a palm tree and never be bothered by anyone.”

Each of Tuvalu’s islands has a hospital, but the government couldn’t afford to staff all of them with doctors until the .tv deal came through, Talake said. The .tv money will also pay for more classrooms, more training for teachers, new roads and more frequent ferry service to Tuvalu’s outlying islands, which can take two days to reach, Talake said.

“We are very lucky to strike such a deal,” Talake said. “We will be able to build things we would otherwise not be able to build. I know there are some countries here in the South Pacific that are very jealous.”

This isn’t the first time Tuvalu has tried to profit from its technological resources. In the 1990s, it struck a deal to let a Hong Kong company use some of its phone numbers for a 900-number business. But officials in the Christian nation moved to cancel the $1.2-million-a-year contract after they discovered that the numbers were being used for phone sex lines.

Government ministers suspected .tv could be an even bigger gold mine. They rejected several other offers before accepting a $50-million deal from a Canadian entrepreneur in 1998. But he was unable to make the payments he promised, so last year he recruited Idealab to get involved. Idealab then created DotTV. (The entrepreneur, Jason Chapnik, remains on the company’s board.)

DotTV Chief Executive Lou Kerner is confident he can succeed where Chapnik failed. He has assembled a board of advisors that includes former Universal Studios CEO Frank Biondi, former E! Entertainment Television CEO Lee Masters, and Jim Chabin, president of the Academy of Television Arts and Sciences. He struck a series of deals with partners he describes as big-name entertainment companies from around the world, although he is not yet ready to reveal who they are. And in a test earlier this week, he said he sold 200 Internet names ending in .tv for a total of about $250,000.

“It’s the most recognizable two-letter symbol on the planet,” Kerner said. “When you marry ‘dot’ with ‘TV,’ you become something very meaningful [on] the Internet.”

Besides, he said, “everybody knows the problems with dot-com--it’s cluttered, it has no cachet, and it’s difficult or impossible to get the name you want.”

Indeed, the rush to reserve names ending with the popular “.com” has been overwhelming. More than 8 million .com names have already been registered, compared with 1 million names in “.net” and “.org” combined, according to Network Solutions, the company that keeps track of registrations. Originally, .com was designed for use by companies, .net was reserved for Internet service providers, and .org was meant for nonprofit organizations.

To create more space for Internet names, entrepreneurs have begun convincing countries to let them sell names ending in their country code suffixes. Tuvalu’s South Pacific neighbor Tonga was the first country to agree to do it, in 1997, though its “.to” isn’t as catchy as .tv. And Moldova, a former Soviet republic, gave a Florida company the right to sell Internet names ending in its “.md” to physicians and hospitals for $299 a pop. After signing up about 20,000 names in two years, the Florida firm, Domain Name Trust, recently sold the franchise to MedAscend of Atlanta for $10 million.

“Depending on which story you want to believe, there’s going to be somewhere in the neighborhood of 100 million to 150 million [names] registered by 2003, but everything in the English-language dictionary has been taken,” said David Sams, a Beverly Hills entrepreneur. Sams has teamed with broadcasting giant Clear Channel Communications to sell more than 75,000 Internet names ending in “.cc,” the country code assigned to Cocos Keeling Islands.

But others believe there is still plenty of room left for names ending in .com.

Richard Forman is chief executive of Register.com, a New York firm that registers Internet names with the traditional .com, .org and .net suffixes. He estimates that with 400,000 words in the dictionary, there are potentially 160 billion combinations of two-word Internet names.

And then there’s the prestige factor. Three years and hundreds of millions of dollars in Super Bowl ads have made “dot-com” a household word.

However, DotTV’s Kerner argues that the very popularity of dot-com has diluted its value. “Everything is dot-com,” he said. “Good sites are dot-com, and bad sites are dot-com.”

Kerner hopes to boost the profile of .tv by giving away names to broadcasters who agree to promote them on the air. Others will have to buy .tv names in an online auction. Prices start at $1,000 and bids must be made in $1,000 increments, said Kerner, who expects $10,000 sales to be common. That’s pricey compared with the typical $35 charge a year to register an Internet name.

But it all sounds good to Tuvalu. Most of Tuvalu’s residents are subsistence farmers and fishermen who have yet to log on to the Internet because it is available primarily to the government and some businesses.

“A lot of people have heard about it [here], but not many understand it,” Talake said.

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Tuvalu Profile

* Size: 10 square miles, one-tenth the size of Washington

* Natural resource: Fish

* Population: 10,588 (July 1999 estimate)

* Life expectancy at birth: 64.15 years

* Ethnic groups: Polynesian, 96%

* Independence: Oct. 1, 1978, from Britain

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Source: CIA World Fact Book