GIFs could be the starting point for a potential antitrust breakup of Facebook’s digital media empire.
In response to concerns raised by UK regulators, Facebook (FB) may be forced to spin off Giphy and relinquish control of that company’s massive library of GIFs — animated images used by millions to express emotions and reactions across the internet.
The acquisition, which Facebook announced last year, risks reducing competition in advertising and social media, according to UK antitrust regulators.
The UK’s Competition and Markets Authority (CMA) said in a preliminary finding that Facebook’s control over Giphy could allow it to block other social media sites from accessing Giphy’s images.
Giphy’s services currently integrate with Twitter, Snapchat, iMessage, and Slack, among others.
The decision is a setback for Facebook’s global ambitions in the face of increased antitrust scrutiny from governments around the world, as well as a potential red flag for other Big Tech companies considering acquisitions in this regulatory environment.
While the Giphy acquisition — reportedly for $400 million — is far from the largest deal Facebook has ever made, it could be the company’s first high-profile deal to be unwound by government officials since the company began facing questions about its powerful position in digital markets several years ago. It also demonstrates how closely government officials are watching Facebook’s every move.
A Facebook spokesperson said in a statement that the company disagrees with the finding and that it lacks evidence.
“This merger is in the best interest of people and businesses in the UK — and around the world — who use Giphy and our services,” the spokesperson said. “We will continue to work with the CMA to address the misconception that the deal harms competition.”
Facebook promised in its initial announcement of the deal that third parties would have the same level of access to Giphy’s content as before. The CMA, however, said it was looking into the acquisition less than a month after it was announced.
Giphy had planned to expand its growing advertising business to the UK before Facebook bought it, according to the CMA, which could have given UK brands a new way to promote themselves and provided a direct competitor to Facebook in the advertising market.
“However, Facebook terminated Giphy’s paid advertising partnerships following the deal, meaning an important source of potential competition has been lost,” the CMA said in a blog post. A related document by the agency said that only a full spin-off of Giphy from Facebook would be enough to correct the harms to competition.
“A full divestiture of Giphy would represent a comprehensive and effective remedy,” the agency said. “At this point we have not identified any smaller divestiture package that would be similarly effective.”
The CMA is seeking public input on its investigation and proposed remedy, and a final decision is expected by Oct. 6.
