Meta Begins Appeal Against UK Order To Sell Giphy

Facebook owner Meta Platforms on Monday began its appeal against the British competition watchdog, after it ordered it to sell-off Giphy, the provider of humorous short looping videos (Gifs).

Reuters reported that Meta is arguing the fact that rival Snap offered far less to buy the animated-images provider, which undermines the rationale used to block the deal.

An appeal was always likely, as the decision by the UK’s Competition and Markets Authority (CMA) was the first time the British regulator had blocked a major digital acquisition, and it signals a step change in its scrutiny of ‘big tech’ companies.

Controversial deal?

Facebook’s acquisition of Giphy took place in May 2020, and the social networking giant promised at the time to grant third parties the same level of access to Giphy’s content as before.

Both firms are headquartered in the United States.

But in June 2020 the UK’s competition authority got involved in the matter, because it said that Giphy did business in the United Kingdom.

The CMA examined 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”.

The CMA began its initial investigation in January 2021, 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.

In April 2021 the CMA said it would deepen its investigation of the takeover of Giphy, which prior to its acquisition, was headquartered in New York and Los Angeles.

The deal had raised competition concerns because 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.

This raised competition concerns about Facebook’s existing market power in display advertising.

CMA order

Matters became more worrying for Mark Zuckerberg in August 2021, when the CMA “provisionally found Facebook’s merger with Giphy would harm competition between social media platforms and remove a potential challenger in the display advertising market.”

But Facebook objected strongly and in September said the British competition regulator had no authority to intervene on the matter, as Giphy was “a US company with commercial activities strictly limited to the US.”

Following that, the CMA fined Facebook £50.5 million ($69.6 million) for ‘deliberately’ breaching a compliance disclosure order imposed during its investigation into its purchase of Giphy.

Then in November 2021 the CMA ordered Facebook to sell-off Giphy after it decided the remedies offered by the American company did not answer its concerns.

But in December 2021, Meta confirmed it was appealing against the CMA decision, saying the evidence does not support the CMA finding that the deal is a threat to its rivals or could impact competition in display advertising

Appeal case

Now Reuters reported that on day one of a four-day hearing at the Competition Appeal Tribunal, Meta’s lawyer Daniel Jowell said the CMA had withheld for 14 months the fact that Meta’s rival Snap had made an informal offer to buy Giphy, valuing it internally at $142 million.

That was less than half the $315 million offered by Meta.

Snap’s low valuation indicated that, like Meta, it believed Giphy’s ads business did not have real potential, he reportedly said.

Jowell said the CMA did not ask Snap if it had attributed any value to Giphy’s ad business – a procedural failure in itself – but it was clear it was “not the motivation for Snap in having an interest in purchasing Giphy”.

Snap later acquired Gfycat, a competitor to Giphy.

Meta’s Jowell said Giphy’s revenue in the United States was less than 0.05 percent of Meta’s ad revenue – “literally minuscule” – while Giphy sold no ads in Britain or elsewhere.

A Meta spokesperson meanwhile told Reuters the information made public on Monday backed its argument that the deal promoted competition and improved choice.

“The decision to block the deal is wrong on the law and the facts, and the evidence does not support the CMA’s conclusions or remedy,” the Meta spokesperson said.

The CMA however said it would defend its decision “vigorously”.

“This merger combined Meta’s significant market power in display advertising and social media with Giphy’s position as a leading provider of free GIFs and GIF stickers in the UK,” a spokesperson told Reuters.

“By requiring Meta to sell Giphy, we are promoting competition and innovation in digital advertising and ensuring rival social media providers can get competitive access to Giphy’s services – for the benefit of UK consumers,” the CMA spokesperson added.

The case continues.