Facebook accuses UK competition watchdog of ‘fundamental errors’ in Giphy inquiry

Facebook has defended itself against claims by the UK competition watchdog that its takeover of Giphy raises “serious competition concerns”, including over display advertising. 

The social media giant has accused the Competition and Markets Authority, which is carrying out an ongoing investigation into the merger, of publishing initial conclusions that contain “fundamental errors”.

The CMA provisionally concluded last month that the takeover of the company, which allows users to access free GIFs, “has resulted or would result in a substantial lessening of competition (SLC) in social media and display advertising, harming social media users and businesses in the UK”.

In its report, released on 12 August, it noted the merger, which took place in June 2020, saw Facebook terminate Giphy’s paid advertising partnerships in the US, which had allowed companies to promote their brands through images and GIFs.

Before the takeover, Giphy was considering bringing this service to the UK, which could have created a competitor to Facebook in the advertising market, said the CMA.

The CPA also highlighted that Facebook’s platforms already have around a 50% share of the UK’s £5.5 billion display advertising market.

The watchdog has published options for action to take should it conclude its initial concerns are correct – with its preference being “full divestiture”, meaning Facebook could be required to sell Giphy.

However, Facebook has claimed “no remedies are required” because “the CMA [has] failed to show a substantial lessening of competition”.

In its response to the watchdog’s findings, Facebook said the CMA’s view that Facebook has “significant market power” in UK display advertising is “erroneous”.

Facebook’s response, published by the CMA on 8 September, also critcised the watchdog for failing to propose alternative options to full divestiture—which it said went against the CMA’s own guidance.

It said: “The remedies notice fails to propose alternatives to a complete divestiture that would be far less intrusive and equally effective…”

It added: “In any event, even if the CMA’s [preliminary findings] were accurate (and Facebook disputes that they are), the CMA’s remedies guidance states that ‘[in] order to be reasonable and proportionate, the CMA will seek to select the least costly remedy, or package of remedies, of those remedy options that it considers will be effective'. 

“But the CMA’s remedies notice fails to contemplate any alternative remedies that could be at least as efficient and less costly than a complete divestiture.”

The CMA released its preliminary findings last month, with its final report due by 6 October.

Speaking last month, Stuart McIntosh, chair of the independent inquiry group carrying out the CMA’s second phase of its investigation, said: “While our investigation has shown serious competition concerns, these are provisional. 

“We will now consult on our findings before completing our review. Should we conclude that the merger is detrimental to the market and social media users, we will take the necessary actions to make sure people are protected.”

Over the summer, Facebook revealed it was continuing to prosper from an increase in demand for online advertising, which drove up the average price of its ads by 47% year on year in the second quarter of 2021.

Advertising revenue grew by 56% to $28.6 billion (£20.5 billion) in the three months ended 30 June, contributing to a doubling (101% growth) of Facebook's net income to $10.4 billion.