Merging company

Progress of the acquisition of Facebook Giphy commissioned by UK CMA

Facebook bought and then eliminated competing advertising service, UK regulator says

The UK Competition and Markets Authority (CMA) has ordered the company formerly known as Facebook to unwind its acquisition of Giphy, Inc. due to potential damage to the social media and advertising markets by digital display. Facebook completed the $ 400 million acquisition of Giphy on May 15, 2020, but has separated the companies since June 9, 2020, under orders from CMA.

Giphy proclaims himself the greatest curator of silent fast looping video clips, or GIFs. The company attracts over a billion searches each month in the UK, traffic that plays directly into Facebook’s advertising activity which is already benefiting from the huge volume of traffic on its flagship platform and on Instagram, Messenger and WhatsApp. Over 80% of internet users in the UK visit at least one Facebook site per month and Facebook accounts for half of the more than $ 9 billion in advertising revenue generated in the UK each year.

In its final report, the CMA endeavored to define the relevant market and the respective shares controlled by the individual players in a space in which the products are very diverse and constantly evolving and developing. The CMA stated that it examined the evidence of market shares as well as evidence of the closeness of competition between the merging parties, now or in the future, and the stability of those shares, the strength of competitive constraints and “The extent of past entries and exits from the markets concerned. markets. The Authority said its assessment was “prospective” based on the business plans of the two companies.

As an independent entity, the CMA determined that GIPHY would have continued to provide GIFs to Facebook as well as other social media platforms and would have continued to “develop its products and services, generate revenue and explore (with financial and commercial support from investors) various options to further monetize its products.

Anti-competitive effects and decision to unwind

The CMA determined that the merger would allow Facebook to continue its dominance in the social media market. Social media platforms use large searchable GIF databases to drive user engagement and only two companies have such databases – Giphy and Tenor (owned by Google). Therefore, by acquiring Giphy, Facebook would control an important user engagement tool, capturing a competitive advantage in a social media market it already dominates.

The AMC also concluded that the merger would eliminate a potential rival in the digital signage advertising market. Prior to the merger, Giphy introduced Paid Alignment in the United States – an innovative advertising service that allowed companies to promote their brands through GIFs. Upon its acquisition, GIPHY was planning to expand the paid roster internationally, including to the UK. Regardless of the ultimate success of the paid roster, CMA believed it would spur innovation from others in the display advertising market. Following the merger, Facebook terminated Giphy’s advertising services, removing a significant source of potential competition. This was of particular concern in light of Facebook’s 50% share of UK display advertising revenue.

The CMA concluded that the only way to remedy these competition concerns was to force Facebook to divest Giphy. The CMA observed that “[s]structural remedies [such as divestiture] are normally preferable to behavioral remedies because they address the negative effects of concentration at the source. Although behavioral remedies may be suitable in some cases, this fusion does not have such characteristics.

A welcome trend among antitrust regulators

For years, big tech companies have embarked on serial acquisitions exempt from government pre-merger review because the deals were too small or didn’t trigger scrutiny because the deals didn’t raise. no traditional antitrust red flag (for example., significant market overlaps or significant increases in the HHI Index in a well-defined relevant market). As a result, federal agencies have not challenged several high-tech mergers that have proven to have significant anti-competitive effects, including some that have since drawn agency challenge, such as Facebook’s acquisitions of WhatsApp and Instagram. These runaway mergers are one of the main reasons large tech companies have reached their problematic size and market power. The CMA’s approach to Facebook’s proposed Giphy acquisition reveals a welcome trend to take potential competitive harms more seriously.

Regulators can learn from their mistakes as many have updated their thinking on acquisitions by big tech companies. Here, the CMA condemned the Facebook acquisition even though Giphy has yet to generate revenue in the UK and has no explicit intention of expanding into the UK upon its acquisition. While these facts may have led to rapid approval over the past few years, the CMA determined that they were outweighed by the CMA’s predictions of how the merger would affect competition and consumers in the relevant markets in the past. future, including the possibility for Giphy to enter the UK market. advertising market and stimulate competition and innovation, which cannot happen if the merger with Facebook were allowed.

US agencies have also revised their attitudes and policies regarding acquisitions by big tech companies. For example, in the past twelve months, the FTC accused Facebook to embark on a buy-and-landfill program designed to crush the competition after its failed innovation efforts, which included reversing its stance on Facebook’s acquisitions of WhatsApp and Instagram. The Commission also started to revise decades of mergers by big tech companies, including those of Facebook, Google and Amazon. The agency also renewed its commitment to require aggressive acquirers to obtain pre-approval “before entering into any future transaction affecting each relevant market for which a violation has been alleged, for at least 10 years.”

CMA’s move could mark a trend to end the wave of unhindered big tech acquisitions.

To be sure, the CMA’s decision to force Facebook to sell Giphy may not do much on its own. The $ 400 million price tag is paltry compared to many other mergers in this space. But, given the apparent shift in attitude toward big-tech acquisitions exhibited by several influential application agencies, the CMA’s move could mark a tendency to end the wave of unhindered big-tech acquisitions – without doubts an important inflection point towards the development of a pro-consumer big-tech policy.

Edited by Tom Hagy for MoginRubin LLP.


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