LONDON — The U.K.’s competition regulator announced Thursday it’s starting an investigation into Facebook’s acquisition of popular GIF website Giphy, which is reportedly valued at $400 million.
The Competition and Markets Authority said that it plans to launch the first phase of its probe on Friday, adding that it will issue a decision on whether it plans to take it to a second phase on March 25.
The watchdog is assessing whether the Facebook-Giphy deal will reduce competition in the supply of video clips and animated images. A GIF is a short video clip with no sound that can be shared on messaging apps like WhatsApp and on social media platforms like Twitter.
“We will continue to fully cooperate with the CMA’s investigation,” a Facebook spokesperson told CNBC. “This merger is procompetitive and in the interests of everyone in the U.K. who uses Giphy and our services.”
The CMA issued an “Initial Enforcement Order” last June that stopped the two companies from integrating while it conducts its investigation. As a result, no staff can be transferred between the companies and none of Giphy’s technology can be integrated with Facebook’s products. Facebook can be hit with fines if it doesn’t comply.
A U.K. tribunal court ruled in November that the CMA can carry out its probe as planned after Facebook requested a “derogation.”
The CMA has become increasingly concerned that U.S. tech giants like Facebook and Google reduce competition by snapping up smaller firms that try to compete with them.
Andrea Coscelli, CEO of the CMA, said in a speech in October: “We are concerned the largest platforms are increasingly acting as a brake on innovation, setting the terms of competition in a way that tips the balance in their own favor and undermining the business models of new entrants and potential challengers alike.”
The CMA is planning to set up a new division called the Digital Markets Unit this year which will be tasked with creating a “new code to govern” the behavior of the tech giants.
Why the CMA can probe the deal
Facebook and Giphy are both headquartered in the U.S. but the CMA can investigate mergers when the business being acquired has an annual turnover of £70 million ($88 million) in that particular country, or when the combined businesses have at least a 25% share of any “reasonable” market.
At the time of the acquisition, Facebook said it plans to further integrate Giphy into the Instagram app “so that people can find just the right way to express themselves.”
Facebook has attempted to downplay the claims that the deal could reduce competition.
“Developers and API partners will continue to have the same access to Giphy, and Giphy’s creative community will still be able to create great content,” a Facebook spokesperson said. “We are prepared to show regulators that this acquisition is positive for consumers, developers, and content creators alike.”
The deal is also being investigated by the Australian Competition and Consumer Commission, which announced it was launching a probe earlier this week.
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