Facebook and Big Tech Face a New Round of Regulatory Pressures – Barron’s

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A U.K. regulator signaled it may seek to unwind Facebook s $400 million acquisition of Giphy, after a provisional finding that the deal would damage competition there, marking the latest unfavorable regulatory development for Big Tech.

Shares of Facebook (ticker: FB) close with a 0.8% gain to $362.65 Thursday. On Wednesday, three U.S. senators introduced a bill that seeks to rein in the power the likes of Apple (AAPL), and Alphabet s (GOOGL) Google have over their respective app stores.

The U.K. Competition and Markets Authority said on Thursday that Facebooks acquisition of Giphy, which helps people find animated images to use in social-media posts, could lead to it make that service unavailable on rival platforms. Fewer choices of services that provide GIFs, or images using the graphics interchange format, could increase Facebooks market power.

The CMA noted that most of Facebooks rivals, such as Bytedance-owned TikTok, and Twitter (TWTR), use Giphys services. Google operates Tenor, the only other large platform offering a similar service, the CMA said.

In a statement, a Facebook spokesman said the CMAs decision wasnt supported by evidence and that the company has demonstrated the acquisition is in the best interest of people and businesses in the U.K. and elsewhere. It said it plans to address what it called the CMAs misconceptions.

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The CMA said that before the merger, Giphy offered a paid advertising service in the U.S., and was considering expanding the program to other countries, the U.K. included. Facebook killed the program after the deal closed. Adding Giphy to the U.K. ad market would have encouraged more competition among advertisers, the CMA said. The regulator said Facebook has roughly a 50% share of the U.K. display ads market, which is about 5.5 billion ($7.6 billion).

Facebook acquired Giphy in May of last year. The deal quickly resulted in scrutiny from the CMA, which began too look into the deal that June. The CMA sought responses to its provisional findings ahead of its final report, which is due Oct. 6.

The rules proposed in the U.S., meanwhile, would force Apple and Google to let users install apps from other competing stores, and allow developers to collect user fees and payments outside of the app stores, without using payment technology or paying commissions to Apple and Google. The bill would also prevent the companies from having app-store searches favor their own apps, or using nonpublic data to benefit their apps.

The legislations goal appears to be to lower the fees Apple and Google charge in their app stores, according to Cowen analyst Paul Gallant. According to his analysis, the bill has a 60% chance of passage. Improving its prospects are the facts that it is a bipartisan effort, and wont be opposed by Amazon.com (AMZN) or Facebook, among other factors, he said.

If the effort succeeds, Gallant said, it would likely become law in the first half of next year with immediate effect. Its possible the companies could mount a legal challenge, but Gallant said Congress will carefully craft the bill to minimize such a risk.

Shares of Alphabet advanced 0.7% to close at $2,743.88 in regular trading Thursday, as Apple gained 2.1% to $148.89.

Write to Max A. Cherney at max.cherney@barrons.com

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Facebook and Big Tech Face a New Round of Regulatory Pressures - Barron's