Facebook could be forced to sell off GIF platform Giphy in response to UK regulators

The potential antitrust breakup of Facebook’s digital media empire could start with GIFs.

Facebook (FB) could soon be required to spin off Giphy in response to concerns by UK regulators, and give up control of that company’s massive library of GIFs — the animated images used by millions to express emotions and reactions across the internet.

UK antitrust regulators said Thursday that the acquisition, which Facebook announced last year, risks reducing competition in advertising and social media.

In a provisional finding, the UK’s Competition and Markets Authority (CMA) said Facebook’s control over Giphy could allow it to cut off other social media sites’ access to Giphy’s images. Giphy’s services currently integrate with services like Twitter, Snapchat, iMessage and Slack.

The finding is a blow to Facebook’s global 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.

Lina Khan, commissioner of the Federal Trade Commission (FTC) nominee for U.S. President Joe Biden, speaks during a Senate Commerce, Science and Transportation Committee confirmation hearing in Washington, D.C., U.S., on Wednesday, April 21, 2021. Khan's selection for the FTC indicate that Biden is prepared to pursue a more interventionist antitrust agenda in which officials are quicker to challenge mergers and the market power of dominant companies.

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While far from the largest deal Facebook has ever done, the Giphy acquisition — reportedly for $400 million — could be the company’s first high-profile deal to be unwound by government officials since Facebook began confronting questions about its powerful position in digital markets several years ago. And it shows how closely officials are watching Facebook’s every move.

In a statement, a Facebook spokesperson said 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.”

In 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.

The CMA said Thursday that Giphy had been planning to expand its growing advertising business to the UK before the Facebook acquisition, a move that could have given UK brands a new way to promote themselves and provided a direct challenger 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 soliciting public feedback on its investigation and proposed remedy and is expected to issue a final decision by Oct. 6.