London (CNN Business)Regulators have long threatened to break up Facebook (now called Meta) because of its huge market power. Now one group of officials has followed through and ordered the company to unwind its acquisition of Giphy because the deal could hurt competitors.
The UK Competition and Markets Authority said on Tuesday that Meta’s control of the popular search engine for GIFs — short, looping videos and animations — would reduce competition between social media platforms and had already removed one potential rival in the advertising market. Facebook (FB) bought Giphy, reportedly for $400 million, in 2020. It was intending to integrate the service with Instagram, making it easier for people to find relevant GIFs for their stories and direct messages.Although far from the largest acqusition Meta has ever done, the Giphy acquisition is the company’s first high-profile deal government officials have tried to reverse. Instagram head to testify before Senate subcommittee about the platform's impact on kidsThe finding is a blow to Meta’s aspirations amid intense antitrust scrutiny by governments around the world, and a potential red flag for other Big Tech companies pursuing acquisitions in this regulatory climate.Read MoreIn its initial announcement of the deal, Facebook had vowed to grant third parties the same level of access to Giphy’s content as before. Less than a month after the acquisition was announced, however, the CMA said it was looking into it.”After consulting with interested businesses and organizations — and assessing alternative solutions … put forward by Facebook — the CMA has concluded that its competition concerns can only be addressed by Facebook selling Giphy in its entirety to an approved buyer,” the CMA said in a statement.The tech company said Tuesday it disagreed with the CMA and was considering “all options, including appeal.””Both consumers and Giphy are better off with the support of our infrastructure, talent, and resources,” a Meta spokesperson said. “Together, Meta and Giphy would enhance Giphy’s product for the millions of people, businesses, developers and API partners in the UK and around the world who use Giphy every day, providing more choices for everyone.”In its initial report published in August, the regulator said that Facebook’s control over Giphy could allow it to cut off other social media sites’ access to GIFs. Giphy’s services currently integrate with platforms such as Twitter (TWTR), Snapchat, Apple’s (AAPL) iMessage and Slack (WORK).Instagram head to testify before Senate subcommittee about the platform's impact on kidsDetailing the reasons for its findings, the CMA said the acquisition of Giphy would boost Meta’s significant market power. In addition to driving more traffic to its Facebook, WhatsApp and Instagram platforms, it would allow the company to require competitors such as TikTok, Twitter and Snapchat (SNAP) to provide more user data to access GIFs.The CMA also found that, before the merger, Giphy had launched innovative advertising services which it was considering expanding to countries including the United Kingdom. Giphy allowed companies — such as Dunkin’ Donuts and Pepsi (PEP) — to promote their brands through visual images and GIFs, and it could have competed with Facebook’s own display advertising services. FTC files fresh antitrust complaint seeking to break up FacebookFacebook terminated Giphy’s advertising services at the time of the merger, removing an important source of potential competition, the CMA said. “The CMA considers this particularly concerning given that Facebook controls nearly half of the £7 billion [$9 billion] display advertising market in the UK,” it added. The dispute with UK authorities has already been costly for Meta. The CMA fined the company $70 million in October for repeatedly ignoring warnings and deliberately breaking its rules.The CMA said that Facebook had “consciously” refused to report all the required information during the Giphy investigation.— Rob North, Walé Azeez, Brian Fung and Kaya Yurieff contributed to this article.