Chillin'Competition

Two weeks ago the CMA ordered Meta to sell Giphy. Our readers (who have always been very keen on exploring the blurred boundaries between competition law and silliness) were quick to point out that we could not let the opportunity pass to gif you a primer on the CMA’s order using Giphy’s GIFs.

Since Pablo and I have become serious people, we have invited a new contributor to blog at Chillin’Competition. From now on Areeader will be in charge of our editorial line regarding anything that may be fun, amusing, or remotely interesting. Pablo and I will take care of the rest.

Here are Areeader’s comments on a case that arguably sets a high-water mark for merger enforcement in dynamic, and animated, markets.

The background. The CMA seems to be reacting to the views of some commentators that merger control has been too lax in recent years. It has become commonplace to argue that deals such as Facebook/Whatsapp (2014) and Facebook/Instagram (2012) should have been prohibited. While there may arguably be some hindsight and selection bias at play, it is probably fair to say that some enforcers regret those decisions. And as fans of behavioral economics know, regret is a powerful factor when it comes to decision-making.

A lot has changed. Along came Facebook/Giphy, which the CMA must have seen as an ideal case to flex its muscles.

Some of you may very much doubt that this case would have raised issues in the past but, as we also know….

The CMA’s competition concerns. The CMA has explained that its extraordinary order for Meta to unwind the Giphy acquisition is based on three serious competition concerns:

-The first concern is that Meta could deny or limit other platform’s access to Giphy GIFs. I repeat, this is a serious concern. The CMA identifies a risk that other tech companies would not be able to effectively compete with Facebook and Instagram absent access to those GIFs. It’s easy to see how running out GIFs would be a problem for anyone. The treatment of GIFs as an essential input, however, raises important legal questions that will attract our community’s attention for months to come, like: are GIFs substitutable with memes?

-The second serious concern relates to the risk that Meta could change the terms of access (to GIFs) by, “for example, requiring TikTok, Twitter and Snapchat to provide more user data in order to access Giphy GIFs“). This substantive concern would appear to overlap with the first one, but it arguably helps bring out the user data argument and show that, of course:

-The third concern is that the deal could affect the display advertising market by eliminating “an important source of potential competition” (yes, Giphy). The CMA’s press release explains that before the merger Giphy had launched innovative advertising services, and observes that “Giphy’s services allowed companies – such as Dunkin’ Donuts and Pepsi – to promote their brands through visual images and GIFs“.

Regardless of your opinion on this case, we can probably all agree that the CMA could not have chosen better examples to illustrate the importance of ensuring a healthy market for display advertising:

The remedies. This is the first time that the CMA reverses a completed acquisition by a large digital platform and, inevitably, the remedy has attracted lots of attention. Facebook had offered behavioural remedies consisting in (i) open access to Giphy for new and existing partners, and (ii) creating a sale and licensing arrangement for Giphy’s content and algorithm. The CMA, however, considered that its concerns could only be addressed by Facebook divesting Giphy.

The CMA’s position might again seem surprising. It appears, however, that the CMA would rather avoid engaging in post-transaction compliance monitoring. Why? Because GIF-related competition issues are not time-limited but likely to come up again, and again, and again…

What now? Meta is reportedly considering an appeal. Given the UK’s standard of review for merger cases, battling the CMA may not be easy. We’ll be watching. (Yes, I inserted this last bit and the reference to “battling” only to justify posting a GIF of Mark Zuckerberg fencing in the metaverse).

THE END