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FTC conducting inquiry into Reddit’s AI data-licensing practices ahead of IPO

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On Friday, Reddit reported that the Federal Trade Commission sent the firm a letter about its data-licensing business related to artificial intelligence system training.

On March 14, 2024, we received a letter from the FTC advising us that the FTC’s staff is conducting a non-public inquiry focused on our sale, licensing, or sharing of user-generated content with third parties to train AI models,” Reddit stated in a revised initial public offering prospectus. Reddit filed for an IPO in February, and it intends to list on the New York Stock Exchange under the ticker symbol “RDDT.”

Although Reddit’s principal business is online advertising, the company is exploring new revenue streams and is in the “early stages” of its “data licensing efforts,” according to the filing.

Reddit stated that “the opportunity does not conflict with our values or the rights of our Redditors,” referring to its users and forum moderators.

The 19-year-old company has filed to sell shares in its IPO for $31 to $34 each, valuing the company at over $6.5 billion. Reddit is attempting to enter the public market during a traditionally slow season for tech IPOs. Since Instacart and Klaviyo launched in September, there have been no notable venture-backed software debuts. Before that, the market had been mostly closed since late 2021.

Reddit’s income increased 20% last year to $804 million. Advertising accounted for around 98% of their total sales. The remaining 2% covers data licensing.

“These programs may subject us to evolving approaches to the regulation of this data and implicates complex and developing data privacy and data protection, misappropriation, and intellectual property laws, rules, and regulations,” Reddit stated in its most recent filing.

An FTC spokeswoman declined to comment.

Reddit announced in January that it has signed data-licensing agreements worth $203 million over the next two to three years. It expects to earn at least $66.4 million from these agreements by 2024.

In the same week that Reddit filed for its IPO, Google increased its partnership with the firm, providing access to data for AI model training and other purposes.

“We believe our growing platform data will be a key element in the training of leading large language models (“LLMs”) and serve as an additional monetization channel for Reddit,” the business wrote in its prospectus.

Reddit stated that it is “not surprising that the FTC has expressed interest” in the topic, given the “novel nature of these technologies and commercial arrangements.”

“We do not believe that we have engaged in any unfair or deceptive trade practice,” Reddit said in a statement. “The letter indicated that the FTC staff was interested in meeting with us to learn more about our plans and that the FTC intended to request information and documents from us as its inquiry continues.”

According to Reddit, dealings with regulators could be “lengthy and unpredictable” and could result in “substantial costs” as well as other probes and product changes that could “require us to change our policies or practices, divert management and other resources from our business, or otherwise adversely impact our business, results of operations, financial condition, and prospects.”

Reddit’s data-licensing business sparked great outrage among Reddit moderators over the summer, when the company revealed a pricing adjustment affecting some third-party developers that use its application programming interface, or API, to construct apps.

The business justified the API pricing increase to assure fair compensation from tech companies like Google and OpenAI, who use Reddit data to train and enhance AI models. However, numerous developers complained that the API upgrade was too expensive for them to continue running their Reddit apps, which some Redditors utilized to assist them regulate debates.


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