Reddit said on Friday that the Federal Trade Commission sent a letter to the corporate about its data-licensing business related to the training of artificial intelligence systems.
“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 coach AI models,” Reddit said in an updated initial public offering prospectus. Reddit filed for an IPO in February, and plans to trade on the Latest York Stock Exchange under the ticker symbol “RDDT.”
Although Reddit’s core business relies on internet marketing, the corporate is looking for to generate income in other ways, and is within the “early stages” of its “data licensing efforts,” the filing said.
Reddit said, “the chance doesn’t conflict with our values and 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 at $31 to $34 each in an offering that may value the business at near $6.5 billion. Reddit is attempting to hit the general public market during a historically slow period for tech IPOs. There hasn’t been a notable venture-backed tech debut since Instacart and Klaviyo in September. Before that, the market had been largely shuttered since late 2021.
Reddit’s revenue rose 20% last yr to $804 million. About 98% of its sales got here from promoting. The remaining 2% includes 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 mental property laws, rules, and regulations,” Reddit said within the updated filing.
An FTC spokesperson declined to comment.
Reddit said it entered into some data-licensing deals in January with a complete contract value of $203 million over two to a few years. It expects to acknowledge a minimum of $66.4 million from these agreements in 2024.
The identical week that Reddit filed for its IPO, Google announced an expanded partnership with the corporate, giving the search giant access to data to coach its AI models, amongst other uses.
“We imagine our growing platform data might be a key element within the training of leading large language models (“LLMs”) and function a further monetization channel for Reddit,” the corporate said in its prospectus.
Reddit said it’s “not surprised that the FTC has expressed interest” within the matter, considering “the novel nature of those technologies and business arrangements.”
“We don’t imagine that we’ve got engaged in any unfair or deceptive trade practice,” Reddit said. “The letter indicated that the FTC staff was desirous about 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.”
Reddit noted that any dealings with regulators may very well be “lengthy and unpredictable” and will end in “substantial costs” and other probes and product changes that would “require us to alter 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 was at the middle of a widespread protest from Reddit moderators, who were upset over the summer when the corporate announced a pricing change affecting some third-party developers using its application programming interface, or API, to construct apps.
The corporate said on the time that the API price hike was mandatory to make sure it was adequately compensated by tech corporations akin to Google and OpenAI, which siphon massive amounts of Reddit data to assist train and improve the capabilities of their AI models. But several developers complained that the API update proved too costly for them to proceed operating their Reddit apps, which some Redditors used to assist them moderate discussions.
