The UK’s Competition and Markets Authority (CMA) has ordered Facebook, now formally known as Meta, to sell animated image database Giphy.
The decision concludes a ten-month long investigation into the May 2020 acquisition, which saw Facebook purchase Giphy for an estimated $400 million (£290 million), quickly raising concerns about its impact on the display advertising market.
On Tuesday, the CMA panel reviewing the acquisition concluded that Facebook could use Giphy to increase its dominant social media platform market status even further, already accounting for 73% of user time spent on social media in the UK.
This could be done by either denying or limiting its competitors’ access to Giphy GIFs, or by adjusting the terms of access so that competitors such as TikTok, Twitter, and Snapchat are required to provide Facebook with additional user data to access Giphy GIFs.
Moreover, the CMA found that, before being acquired by Facebook, Giphy’s advertising services had the potential to compete with the tech giant’s own display advertising services, thus encouraging greater innovation from others in the market, social media sites and advertisers alike. By purchasing Giphy, Facebook removed “an important source of potential competition”, allowing it to continue to control nearly half of the UK’s £7 billion display advertising market.
Stuart McIntosh, who chaired the CMA’s independent inquiry group carrying out the phase 2 investigation, stated that the “tie-up between Facebook and Giphy has already removed a potential challenger in the display advertising market”.
“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. By requiring Facebook to sell Giphy, we are protecting millions of social media users and promoting competition and innovation in digital advertising,” he added.
Peter Broadhurst, a partner at law firm Crowell & Moring, told IT Pro that “this is the first time the CMA has ever blocked a major digital tech deal and indicates the direction of travel for UK regulator’s oversight of similar deals going forward”.
“The decision also suggests that the CMA will not back down in the face of questions and criticism over jurisdiction and overreach – this is exactly the kind of deal that the CMA feels it should be scrutinising,” he said, before adding that the ruling “is consistent with the CMA’s position that, although the UK has a voluntary merger control regime, parties complete deals without having first sought approval at their own risk”.
A Meta spokesperson told IT Pro that the company "disagree[s] with this decision" and is "reviewing the decision and considering all options, including appeal".
"Both consumers and GIPHY are better off with the support of our infrastructure, talent, and resources. 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," they said.
The ruling comes weeks after the CMA fined Facebook £50.5 million for “consciously refusing to report all the required information”, breaching an order imposed during the Facebook-Giphy investigation.
