Competition and Markets Authority provisionally finds Facebook’s merger with Giphy will harm competition on social platforms
Facebook is facing the very real prospect of offloading Giphy, the provider of humorous short looping videos.
Facebook’s acquisition of Giphy was announced in May 2020, but in June last year the UK’s competition authority, the Competition and Markets Authority (CMA) got involved in the matter.
The CMA said it would look into 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”.
Then in April this year, a worrying development for Facebook came when the CMA said it would deepen its investigation of the takeover of Giphy.
The deal had raised competition concerns as 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.
The CMA began an 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.
This raised its concerns about Facebook’s existing market power in display advertising.
Facebook for its part had reportedly said that Giphy’s integrations with other social platforms like Twitter Snapchat and ByteDance’s TikTok would not change.
The CMA had given Facebook and Giphy five working days to offer proposals to address its concerns over their merger deal.
And it seems that these proposals have not eased the concerns of the UK regulator, and on Thursday it announced that it had “provisionally found Facebook’s merger with Giphy will harm competition between social media platforms and remove a potential challenger in the display advertising market.”
If the CMA competition concerns are ultimately confirmed, it could require Facebook to unwind the deal and sell off Giphy in its entirety.
The problem is that following an in-depth investigation, the CMA provisionally found that Facebook’s takeover of Giphy will negatively impact competition between social media platforms.
“Millions of posts every day on social media sites now include a GIF,” it said. “Any reduction in the choice or quality of these GIFs could significantly affect how people use these sites and whether or not they switch to a different platform, such as Facebook. As most major social media sites that compete with Facebook use Giphy GIFs, and there is only one other large provider of GIFs – Google’s Tenor – these platforms have very little choice.”
The CMA is concerned that Facebook’s ownership of Giphy could lead it to deny other platforms access to its GIFs, despite its assurances that it would not that.
The CMA also feels Facebook could change the terms of this access – for example, the social network could require Giphy customers, such as TikTok, Twitter and Snapchat, to provide more user data in order to access Giphy GIFs.
“Such actions could increase Facebook’s market power, which is already significant,” said the CMA “The CMA’s analysis suggests that Facebook’s platforms – Facebook, WhatsApp, and Instagram – account for over 70 percent of the time people spend on social media and are accessed at least once a month by 80 percent of all internet users.”
“Millions of people share GIFs every day with friends, family and colleagues, and this number continues to grow,” said Stuart McIntosh, chair of the independent inquiry group carrying out the phase 2 investigation.
“Giphy’s takeover could see Facebook withdrawing GIFs from competing platforms or requiring more user data in order to access them,” said McIntosh. “It also removes a potential challenger to Facebook in the £5.5 billion display advertising market. None of this would be good news for customers.”
“While our investigation has shown serious competition concerns, these are provisional,” McIntosh added. “We will now consult on our findings before completing our review. Should we conclude that the merger is detrimental to the market and social media users, we will take the necessary actions to make sure people are protected.”
McIntosh noted that other competition authorities are also investigating the merger, and the CMA welcomes responses from interested parties to its provisional findings by 2 September 2021 and its notice of possible remedies by 25 August 2021.
These will be considered ahead of the CMA issuing its final report, which is due by 6 October 2021.