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UK sets significant precedents in ordering Meta to sell Giphy

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The UK Competition and Markets Authority has reaffirmed its demand that US internet giant Meta undo its 2020 acquisition of GIF search engine Giphy.

This marks the completion of a protracted appeals process following the first CMA ruling almost a year ago. The company formerly known as Facebook inevitably appealed the ruling, which a UK court largely dismissed in the middle of this year. The CMA then got some people to have one more look at the situation and, equally inevitably, declined to change its mind.

“This deal would significantly reduce competition in two markets,” said Stuart McIntosh, Chair of the independent inquiry group. “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. This will promote innovation in digital advertising, and also ensure UK social media users continue to benefit from access to Giphy.”

While far from Meta’s biggest acquisition, the $400 million Giphy cost still positions it as a significant player in the market. Digital advertising in the UK and many other countries is already dominated by Meta and Google, so it’s reasonable to view any acquisitions by the two of them in that area through the antitrust lens. However small a piece of that market Giphy had, it still represented an independent alternative to the duopoly.

In its final ruling the CMA stressed that ‘Meta controls almost half of the £7 billion display advertising market in the UK.’ Even more remarkably, it claimed Meta-owned sites already make up 73% of user time spent on social media in the UK. That seems unbelievably high but, if accurate, must surely preclude any social media-related M&A by Meta whatsoever on monopolistic grounds. Since GIFs are a popular component of social media activity, the CMA concluded Meta’s acquisition of Giphy put it in the position to diminish the user experience on competitor platforms.

Having exhausted its appeals options, Meta has now officially thrown in the towel and will try to extract what value it can from the forced sale of Giphy. The broader significance of this is the setting of two precedents. The first is the undoing of a major piece of M&A years after it has completed and the second is the ability of a national regulator to impose its will in such a profound way on a foreign-based company.

Competition authorities in many countries have indicated regret at allowing Meta’s acquisitions of Instagram and WhatsApp to take place and now it seems no piece of M&A can ever be considered permanent. Perhaps this precedent will further embolden the US government in its drive to bend big tech to its will, thus entrenching its own monopolistic power.

 

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