UK’s Final Decision Orders Meta To Sell Giphy

The Competition Markets Authority (CMA) has handed Mark Zuckerberg a setback, after the UK competition regulator ordered Meta to divest itself of Giphy.

The CMA stood by its original ruling, after the British regulator told Silicon UK in July that it would reconsider its decision as part of an “expedited review” of its original ruling.

Now three months later the CMA on Tuesday announced that it stood by its original order to sell the business – the first time that British regulator has blocked an acquisition by a Silicon Valley tech giant.

Giphy purchase

And Meta said it accepted Tuesday’s CMA decision as the final word on the matter, and would sell off Giphy, settling a dispute that has seen both sides remain at loggerheads for nearly two years.

Meta’s acquisition of Giphy took place back in May 2020, and it 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.

However 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 “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 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 British 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 regulatory 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.”

Meta objected strongly and in September 2021 it told the British competition regulator that it 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 after concluding its investigation, the CMA ordered Facebook to sell-off Giphy after it decided the remedies offered by the American company did not answer its concerns.

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

CMA decision

The CMA confirmation of its November 2021 order is the first time the British regulator had blocked a major digital acquisition, and comes amid growing scrutiny of ‘big tech’ companies and their acquisitions.

After its three month review of its sell-off order, the independent CMA panel concluded Meta would be able to increase its already significant market power by:

• denying or limiting other social media platforms’ access to Giphy GIFs, thereby pushing people to Meta-owned sites, which already make up 73% of user time spent on social media in the UK, or
• changing the terms of access – for example, it could require Giphy customers, such as TikTok, Twitter and Snapchat, to provide more data from UK users in order to access Giphy GIFs

The CMA also found the merger would negatively impact the display advertising market.

The CMA said it found that Giphy’s advertising services had the potential to compete with those of Meta, and would have encouraged greater innovation from Meta and other market players. However, Meta terminated Giphy’s advertising services upon acquisition, removing a potential ad tool for UK businesses. The CMA considers this particularly concerning given Meta controls almost half of the £7 billion display advertising market in the UK.

The CMA has concluded the only way to avoid the significant impact the deal would have on competition is for Giphy to be sold off in its entirety to an approved buyer.

Meta reaction

“This deal would significantly reduce competition in 2 markets,” noted Stuart McIntosh, Chair of the independent inquiry group carrying out the remittal investigation. “It has already resulted in the removal of a potential challenger in the UK display ad market, while also giving Meta the ability to further increase its substantial market power in social media.”

“The only way this can be addressed is by the sale of Giphy,” added McIntosh. “This will promote innovation in digital advertising, and also ensure UK social media users continue to benefit from access to Giphy.”

Meta expressed its disappointment about the CMA decision, but accepted the ruling.

“We are disappointed by the CMA’s decision but accept today’s ruling as the final word on the matter,” a spokesperson for Meta told the Guardian newspaper. “We will work closely with the CMA on divesting Giphy.”

“We are grateful to the Giphy team during this uncertain time for their business, and wish them every success,” said Meta. “We will continue to evaluate opportunities – including through acquisition – to bring innovation and choice to more people in the UK and around the world.”