British Competition Authority Rules Meta Must Sell Giphy

Meta Platforms, previously Facebook, has been ordered to sell digital platform Giphy by the British competition watchdog which has ruled that the $400 million merger “has resulted or would result in a substantial lessening of competition.” The Competition and Markets Authority (CMA) has said that the merger that was announced in May 2020 is anticompetitive within the field of social media and display advertising, claiming that it could harm social media users and businesses in the U.K. The ruling follows a provisional outline made in August following an investigation that has now been released. The verdict concluded 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.” Top Line Despite being free to use, from 2017 Giphy began to generate revenue in the U.S. through aligning its search results with paying brands and advertisers including consumer brands such as Pepsi and Dunkin’. This is a revenue stream that it was considering expanding into new territories prior to the acquisition where the practice was to stop as one of the deal caveats. Between the Lines While both are U.S. companies, they operate in the U.K. and overlap in their supply of apps and websites that supply users in Britain with gifs, a sector in which the parties are found to have over 50% share and growing. The investigation found that in searching for gifs “social media and messaging platforms have a very limited choice of alternatives to Giphy” citing Google’s Tenor as its closest challenger. In deciding to demerge the two companies, the future of Giphy was also considered, and it was found to be capable of continuing to fund itself through its paid alignment model and through external funding or another sale. To remedy the competition issues, Meta proposed it would maintain open access to Giphy’s library as well as to new and existing API parties, include other gif providers within its search results and create a white label copy of Giphy’s content library and license its search algorithm for use for five years. However, the CMA found only one solution for competition concerns, which was the “full divestiture” of Giphy altogether. Bottom Line As the merger of the two companies had already taken place with members of staff redeployed within Meta alongside back-office functions, the CMA recognized in its final decision that Giphy was now in a “significantly weaker” position as an independent company than it was pre-acquisition. As a consequence, it told Meta it would have to reinstate certain elements of the business to allow it to compete effectively following the divestiture and be given sufficient financial resources, too. In response, Meta released the following statement: “We disagree with this decision. We are reviewing the decision and considering all options, including appeal. Both consumers and Giphy are better off with the support of our infrastructure, talent and resources. Together, Meta and Giphy would enhance Giphy’s product for the millions of people, businesses, developers and API partners in the U.K. and around the world who use Giphy every day, providing more choices for everyone.” Giphy Shares Its Best of 2021