Facebook may be forced to sell Giphy following UK regulator findings

The CMA is worried about the deal's impact on social media users and display advertising.

Erin Scott / Reuters

The UK's competition regulator has found that Facebook's acquisition of GIF-sharing platform Giphy will harm competition within social media and digital advertising. As part of its provisional decision, the watchdog voiced concerns that Facebook could prevent rivals including TikTok and Snapchat from accessing Giphy, a service they already use. It added that Facebook could also require customers of the GIF platform to hand over more data in return for access. If its objections are confirmed as part of the ongoing review, the regulator said it could force Facebook to unwind the deal and to sell off Giphy in its entirety.

The Competition and Markets Authority (CMA) ultimately determined that the deal stands to increase Facebook's sizeable market power. Together, its suite of apps — including Facebook, WhatsApp and Instagram — account for 70 percent of social media activity and are accessed at least once a month by 80 percent of internet users, the CMA said.

Beyond social media, the watchdog suggested that the acquisition could remove a potential challenger to Facebook in the $5.5 billion display advertising market. Citing Facebook's termination of Giphy's paid ad partnerships following the deal, the regulator said the move had effectively stopped the company's ad expansion (including to additional countries like the UK) in its tracks. This in turn had an impact on innovation in the broader advertising sector, the CMA explained.

Facebook's announcement last May that it was acquiring Giphy, with plans to integrate it with Instagram, for a reported $400 million immediately raised alarm bells for regulators. The social network is facing antitrust complaints in the US and the EU over its social media and advertising monopolies, respectively. At the same time, the UK has ramped up its scrutiny of Big Tech by creating a dedicated Digital Markets Unit to oversee the likes of Google, Facebook and Apple. The fledgling agency sits within the CMA and is designed to give people more control over their data.

Today, the CMA echoed those principles in its initial decision. The regulator said that it would "take the necessary actions" to protect users if it concludes that the merger is detrimental to competition. It will now consult on its findings as part of the reviews process. A final decision is slated for October 6th.

A Facebook spokesperson told Engadget that it "disagrees" with the CMA's preliminary findings. “We disagree with the CMA’s preliminary findings, which we do not believe to be supported by the evidence. 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.”

It previously argued that Giphy has no operations in the UK, meaning that the CMA has no jurisdiction over the deal. In addition, it has claimed that Giphy's paid services cannot be classified as display advertising under the regulator's own market definition.