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UK’s competition authority orders Facebook to sell Giphy in an unprecedented ruling

The CMA assessed the impact of Giphy’s integration with Facebook on UK advertisers and users to reach a decision.

UK’s Competition and Markets Authority (CMA) on November 30 ordered Facebook (now Meta) to sell Giphy, after concluding that the deal could harm social media users and UK advertisers and that these concerns “can only be addressed by Facebook selling Giphy in its entirety to an approved buyer.”

Giphy, a popular online database and search engine for GIFs, was acquired by Facebook in May 2020 for a reported $400 million. But CMA launched a probe into the acquisition arguing that it was potentially anti-competitive and in July 2020 ordered Facebook to stop the integration of Giphy into the company pending a further ruling.

This is the first time CMA has ordered a divestment of a completed acquisition by a tech giant, setting a precedent for future big tech purchases. Other major acquisitions by Facebook include WhatsApp, Instagram, and Oculus, and lawmakers in some countries including the US have previously suggested a review of these purchases as well. But unlike Giphy, these companies are much more integrated and present a different set of challenges.

In a statement to MediaNama, a Facebook spokesperson said:

“We disagree with this decision. We are 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 U.K. and around the world who use Giphy every day, providing more choices for everyone.”

Earlier in August, CMA had provisionally found Facebook’s merger with Giphy will harm competition, but now the authority has concluded the same. Back then Facebook argued that CMA was “sending a chilling message to start-up entrepreneurs: do not build new companies because you will not be able to sell them.” Facebook was also issued a fine of £50 million in October for failing to provide CMA with regular updates on its compliance with the June order.

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Why has CMA ordered the divestment of Giphy?

Increases Facebook’s power in the social media market: The CMA panel that reviewed the merger concluded that Facebook would be able to increase its already significant market power in the social media market by:

  1. Limiting other platforms’ access to Giphy GIFs: Facebook can deny or limit other platforms’ access to Giphy GIFs, which in turn will drive traffic to Facebook-owned platforms (Facebook, WhatsApp, Instagram), which already account for 73 percent of user time spend on social media in the UK, CMA said.
  2. Requiring more user data from other platforms: Facebook can change the Giphy terms of access by “requiring TikTok, Twitter and Snapchat to provide more user data in order to access Giphy GIFs,” CMA noted.

“Millions of posts every day on social media sites now include a GIF. 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.” – CMA said in August

Affects the display advertising market: Additionally, CMA found that the deal also affects the display advertising market because:

  1. Giphy launched an innovative ad service: CMA found that before the merger Giphy had launched an innovative advertising service that allowed companies to promote their brands through GIFs and Giphy was considering expanding this to more countries outside of the US, but;
  2. Facebook shut down this ad service: Facebook terminated Giphy’s advertising services after the merger, potentially stifling competition because Giphy’s service had the potential to compete with Facebook’s own display advertising services, CMA noted. “The CMA considers this particularly concerning given that Facebook controls nearly half of the £7 billion display advertising market in the UK,” the authority said. Facebook is now required to reinstate the innovative advertising services that Giphy offered before the merger, CMA said on Twitter. Facebook had previously disputed the CMA’s allegations saying that Giphy’s advertising business was not a viable competitor because it had “no meaningful audience of its own” and that Facebook provided 50 percent of all of Giphy’s traffic.

Stuart McIntosh, Chair of the independent inquiry group carrying out the investigation, said:

By requiring Facebook to sell Giphy, we are protecting millions of social media users and promoting competition and innovation in digital advertising.

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