The UK Competition and Markets Authority has warned it may require Facebook to unwind its acquisition of GIF-maker Giphy, after provisional findings show it could damage competition between social media platforms.
On August 12, the antitrust watchdog said that Facebook's ownership of Giphy could lead it to deny other platforms access to its GIFs or change the terms of their access.
"For example, Facebook could require Giphy customers, such as TikTok, Twitter and Snapchat, to provide more user data in order to access Giphy GIFs," it said.
The CMA also argued that the merger had prevented Giphy from expanding its advertising services into the UK, bringing a new player into the market and thus a potential challenger to Facebook.
It said that prior to the takeover, Giphy had been offering paid advertising in the US, "which had the potential to compete with Facebook's own display advertising services."
Companies such as Dunkin' Donuts and PepsiCo have promoted their brands through visual images and GIFs.
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However, the CMA added, "Facebook terminated Giphy’s paid advertising partnerships following the deal, meaning an important source of potential competition has been lost.”
"This is particularly concerning given Facebook’s existing market power in display advertising — as part of its assessment, the CMA found that Facebook had a share of around 50% of the £5.5 billion display advertising market in the UK."
Moreover millions of posts on social media every day now include a GIF.
"As most 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 regulator said.
The findings are provisional and the CMA has now called for comments from interested parties. It said these will be considered before it issues its final report, due by Oct 6.
Wrapped up
Facebook announced the completed acquisition of web-based animated GIF search engine Giphy in mid-May 2020, in a deal reportedly worth around $400 million.
Less than a month later, the CMA served an official enforcement order on Facebook preventing it from further integration of Giphy while it launched an investigation into the merger. Facebook then lost an appeal with the Competition Appeal Tribunal, an independent court, which stressed the importance of merging companies engaging constructively with the CMA, after the watchdog complained of a lack of cooperation from the companies.
"Companies seeking a reprieve from an [initial enforcement order] must provide sufficient information to the CMA before a decision can be made to release them from parts of it," was how the CMA interpreted the ruling at the time.
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Facebook has argued that Giphy does not compete with its services and that it is committed to continuing to let rival apps access Giphy's library. It has also said that Giphy had no display advertising product and was not developing one and that it had no social network or meaningful audience of its own.
It has also said that Giphy has no revenues, assets or staff in the UK.
However, the CMA, which increasingly cooperates with other competition regulators, such as the US Department of Justice and the European Commission, has so far been unfazed by Facebook's arguments.
"As well as being investigated by the CMA, the merger is also being reviewed by other competition authorities," it said in Thursday's announcement. "The CMA has engaged with these agencies – and continues to do so – to help progress its investigation."
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