UK competition watchdog orders Facebook to sell Giphy

The Competition and Markets Authority said Facebook's acquisition of Giphy could harm social media users and UK advertisers.
Written by Aimee Chanthadavong, Contributor

The UK competition watchdog has directed Facebook, which was recently renamed to Meta, to sell Giphy, after concluding that the social media conglomerate's acquisition of the GIF giant would reduce competition between social media platforms and the local advertising market.

In carrying out the review, the Competition and Markets Authority (CMA) said it found that through buying Giphy, Facebook would be able to increase its "already significant market power" by denying or limiting other platforms' access to Giphy GIFs and driving more traffic to Facebook-owned sites -- Facebook, WhatsApp, and Instagram -- which already account for 73% of user time spent on social media in the UK.

CMA added it found Facebook could also change the terms of access by, for instance, requiring other social media platforms like TikTok, Twitter, and Snapchat to provide more user data to access Giphy GIFs.

The investigation also looked at how the deal would affect the advertising market. CMA said it found that before the merger, Giphy was launching "innovative" advertising services by allowing companies to promote brands through visual images and GIFs, and had the potential to compete with Facebook's advertising services.

"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," CMA stated.

In concluding and consulting with interested businesses and organisations, the CMA believes its competitions concerns could only be addressed by Facebook if it sold Giphy to an approved buyer.

"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," said Stuart McIntosh, chair of the independent inquiry group that carried out the phase 2 investigation.

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

The findings were in line with the CMA's provisional findings in August.

In October, the CMA fined Facebook £50.5 million for breaching an initial enforcement order by the CMA during its investigation into Facebook's purchase of Giphy. 

As part of the investigation, Facebook is required to provide the CMA with regular updates outlining its compliance with the initial enforcement order. However, the CMA found Facebook "significantly limited the scope of those updates", despite repeated warnings. 

"This is the first time a company has been found by the CMA to have breached an IEO by consciously refusing to report all the required information. Given the multiple warnings it gave Facebook, the CMA considers that Facebook's failure to comply was deliberate," the CMA said at the time. 

"As a result, the CMA has issued a fine of £50 million for this major breach, which fundamentally undermined its ability to prevent, monitor and put right any issues."

Facebook scooped up Giphy in May 2020, a deal estimated to be worth around $400 million.

The Australian Competition and Consumer Commission (ACCC) has been looking into the deal too.

"We are considering questions such as whether they have the ability to give themselves advantages by favouring their own products, or whether these acquisitions are raising barriers to entry for other competitors," ACCC chair Rod Sims said in August of the Facebook-Giphy and Google-Fitbit deals.

"The combination of Facebook's and Giphy's huge datasets certainly increases Facebook's reach in online advertising which is a concern in itself but we are also interested in examining how it will impact the competition in their respective markets."

Sims said Facebook did not notify any competition authorities about the acquisition before its completion.

Meanwhile in the United States, the FTC last September confirmed [PDF] it too was looking into the deal, with an enforcement case "on the go".

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