Facebook could be forced to sell gif creation website Giphy after an investigation by the UK competition regulator found its takeover could harm competition among social media companies and the digital advertising market.
The Competition and Markets Authority (CMA) launched an in-depth investigation earlier this year into Facebook’s acquisition of Giphy, the largest supplier of animated gifs to social networks such as Snapchat, TikTok and Twitter, after identifying a number of concerns about the $400m (£290m) deal which was struck last year.
Gifs are embeddable clips, usually no more than a few seconds long. The most popular gif of 2020 was Thank You by Red & Howling, which shows a cartoon dog expressing its thanks to pandemic essential workers, which Giphy says was viewed more than a billion times.
The CMA said in its provisional findings that “our initial view [is] that the only effective way to address the competition issues that we have identified is for Facebook to sell Giphy, in its entirety, to a suitable buyer”.
The watchdog found that Facebook’s ownership of Giphy, which it aims to integrate with its Instagram social media site, could lead to it stopping supplying gifs to other social media sites. Or Facebook could demand more user data from Giphy’s social media customers to continue to get access to its gifs, increasing the company’s already “significant” market power.
“Millions of people share gifs every day with friends, family and colleagues, and this number continues to grow,” said Stuart McIntosh, chair of the independent inquiry group investigating the deal. “Giphy’s takeover could see Facebook withdrawing gifs from competing platforms or requiring more user data in order to access them.”
The watchdog said the deal also removes a potential competitor from the £5.5bn UK digital display advertising market, where Facebook is the biggest player accounting for more than half the market.
The CMA said Giphy had offered paid advertising in the US with customers including Pepsi and had been considering expanding the service to countries including the UK, but Facebook terminated all deals after the takeover.
Facebook has said in submissions to the investigation that Giphy, which has no revenues or staff in the UK, did not compete with it before the merger and Instagram was committed to continuing to allow rivals access to the library of images.
“We disagree with the CMA’s preliminary findings, which we do not believe to be supported by the evidence,” said a Facebook spokesperson. “As we have demonstrated, this merger is in the best interest of people and businesses in the UK – and around the world – who use Giphy and our services. We will continue to work with the CMA to address the misconception that the deal harms competition.”
Although Facebook and Giphy are headquartered in the US, the CMA has the power to investigate mergers where the business being acquired has annual revenues of at least £70m or when the combined businesses have at least a 25% share of any “reasonable” market. The Facebook-Giphy deal is also being investigated by competition regulators in countries including Australia and Austria.
“While our investigation has shown serious completion concerns, these are provisional,” McIntosh said. “We will now consult on our findings before completing our review. Should we conclude that the merger is detrimental to the market and social media users, we will take the necessary actions to make sure people are protected.”
The CMA has the power to force Facebook to sell Giphy, either through undertakings or via an order, which can be legally enforced through court action. The regulator is now seeking responses to its provisional findings and will issue its final report by 6 October.
The watchdog is in the process of setting up a new dedicated digital markets unit, which will police a new enforceable code of conduct to stop tech giants such as Google and Facebook abusing their power when dealing with third parties.