UK watchdog fines Meta a second time, as Facebook again fails to inform the CMA about ‘material changes’ to its Giphy Purchase
The UK’s Competition and Markets Authority (CMA) continues to play hardball with Meta over the Giphy purchase, as Facebook’s parent continues to break an initial enforcement order (IEO).
Facebook’s acquisition of Giphy, a provider of humorous short looping videos (Gifs), took place in May 2020. Meta promised at the time to grant third parties the same level of access to Giphy’s content as before.
But in June 2020 the UK’s competition authority, the CMA, got involved in the matter, because it said that Giphy did business in the United Kingdom. It issued an initial enforcement order (IEO) to examine whether the $400 million (£317m) deal “has resulted or may be expected to result in a substantial lessening of competition in any market or markets in the United Kingdom”.
The IEO also prevents both companies from integrating further while a merger review is underway.
This order required Meta to actively inform the competition authority of any ‘material changes’ to the business, including resignations of key staff, and then seek prior consent before rehiring or redistributing responsibilities.
The CMA began its initial investigation in January 2021, and after the initial investigation, the CMA said that if the two companies remain merged, Giphy could have less incentive to expand its digital advertising.
In April the CMA said it would deepen its investigation of the takeover of Giphy, which prior to its acquisition, was headquartered in New York and Los Angeles.
The deal had raised competition concerns because Giphy is widely used on social media, and while Facebook said half of Giphy’s traffic originates from Facebook apps, such as Instagram and WhatsApp, Giphy also provides images to others including Snapchat, TikTok and Twitter.
Facebook had also previously said it plans to integrate Giphy into its Instagram photo app, potentially giving it access to large amounts of data.
This raised competition concerns about Facebook’s existing market power in display advertising.
Matters became more worrying for Mark Zuckerberg in August 2021, when the CMA “provisionally found Facebook’s merger with Giphy would harm competition between social media platforms and remove a potential challenger in the display advertising market.”
But Facebook objected strongly and in September said the British competition regulator had no authority to intervene on the matter, as Giphy was “a US company with commercial activities strictly limited to the US.”
In October the CMA fined Facebook £50.5 million ($69.6 million) for ‘deliberately’ breaching a compliance disclosure order (the IEO) imposed during its investigation into its purchase of Giphy.
Matters became even more tense the CMA last November, ordered Facebook to sell-off Giphy after it decided the remedies offered by the American company did not answer its concerns.
In December 2021 Meta appealed against the decision, and said the evidence does not support the CMA finding that the deal is a threat to its rivals or could impact competition in display advertising.
But on Friday the CMA announced it had fined Meta again – this time £1.5m ($2m) over fresh issues regarding its purchase of Giphy.
The CMA has alleged that Meta had failed to comply with the IEO after three key staff resigned, and Facebook did not seek prior consent before rehiring or redistributing responsibilities.
“Meta failed to alert us in advance to important changes in their staff, despite knowing they were legally required to do so,” noted Joel Bamford, senior director of mergers, at the CMA. “This is not the first time this has happened.”
“Initial enforcement orders are an integral part of our mergers toolkit and ensure the CMA is able to take effective action if we find competition concerns,” said Bamford. “Breaches like this one threaten our ability to maintain the benefits of competition for people using these products and services.”
The CMA noted that this is the second time the CMA has issued Meta with a penalty for breaching its IEO, after it issued a £50 million fine last October after it significantly limited the scope of compliance reports, despite repeated warnings from the CMA.
The CMA’s second finer against Meta is a further demonstration of the deteriorating relationship between Meta and the UK regulator.
Meta reportedly said on Friday it did not agree with the CMA’s latest fine, but would pay it. It added that it could not prevent staff from leaving the company.
“We intend to pay the fine, but it is problematic that the CMA can take decisions that could directly impact the rights of our US employees protected under US law,” a spokesperson is quoted as saying by Reuters.