Facebook’s parent organisation Meta has been presented with a major headache, after the British competition watchdog ordered it to sell-off Giphy, the provider of humorous short looping videos (Gifs)

Facebook’s acquisition of Giphy took place in May 2020, and the social network 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 Competition and Markets Authority (CMA) got involved in the matter, because it said that Giphy did business in the United Kingdom.

Troubled acquisition

The CMA examined 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 CMA began its initial investigation in January this year, 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, 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.”

Following that, the CMA fined Facebook £50.5 million ($69.6 million) for ‘deliberately’ breaching a compliance disclosure order imposed during its investigation into its purchase of Giphy.

CMA order

And now the CMA has ordered Meta to sell Giphy, after it concluded that Facebook’s acquisition of Giphy would reduce competition between social media platforms and that the deal has already removed Giphy as a potential challenger in the display advertising market.

The independent CMA panel that had been reviewing the merger concluded that Facebook would be able to increase its already significant market power in relation to other social media platforms by:

  • denying or limiting other platforms’ access to Giphy GIFs, driving more traffic to Facebook-owned sites – Facebook, WhatsApp and Instagram – which already account for 73 percent of user time spent on social media in the UK, or
  • changing the terms of access by, for example, requiring TikTok, Twitter and Snapchat to provide more user data in order to access Giphy GIFs.

The CMA also examined how the deal would affect the display advertising market. It found that, before the merger, Giphy had launched innovative advertising services which it was considering expanding to countries outside the US, including the UK.

Giphy’s services allegedly allowed companies – such as Dunkin’ Donuts and Pepsi – to promote their brands through visual images and GIFs.

The CMA found that Giphy’s advertising services had the potential to compete with Facebook’s own display advertising services. They would have also encouraged greater innovation from others in the market, including social media sites and advertisers.

According to the CMA, Facebook terminated Giphy’s advertising services at the time of the merger, removing an important source of potential competition. The CMA considers this particularly concerning given that Facebook controls nearly half of the £7 billion display advertising market in the UK.

After consulting with interested businesses and organisations – and assessing alternative solutions (known as ‘remedies’) put forward by Facebook – the CMA has concluded that its competition concerns can only be addressed by Facebook selling Giphy in its entirety to an approved buyer.

Facebook response

“The tie-up between Facebook and Giphy has already removed a potential challenger in the display advertising market,” said Stuart McIntosh, Chair of the independent inquiry group carrying out the phase 2 investigation.

“Without action, it will also allow Facebook to increase its significant market power in social media even further, through controlling competitors’ access to Giphy GIFs,” said McIntosh. “By requiring Facebook to sell Giphy, we are protecting millions of social media users and promoting competition and innovation in digital advertising.”

Meta was quoted by CNN as saying on Tuesday that it disagreed with the CMA and was considering “all options, including appeal.”

“Both consumers and Giphy are better off with the support of our infrastructure, talent, and resources,” a Meta spokesperson said. “Together, Meta and Giphy would enhance Giphy’s product for the millions of people, businesses, developers and API partners in the UK and around the world who use Giphy every day, providing more choices for everyone.”

Tom Jowitt

Tom Jowitt is a leading British tech freelancer and long standing contributor to Silicon UK. He is also a bit of a Lord of the Rings nut...

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