Mateusz Slodkowsk | Lightrocket | Getty Photographs
Reddit mentioned Friday that the Federal Commerce Fee despatched a letter to the corporate about its data-licensing enterprise associated to the coaching of synthetic intelligence programs.
“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 mentioned in an up to date IPO prospectus. Reddit filed for an IPO in February, and plans to commerce on the New York Inventory Trade underneath the ticker image “RDDT.”
Though Reddit’s core enterprise depends on internet marketing, the corporate is in search of to generate income in different methods, and is within the “early stages” of its “data licensing efforts,” the submitting mentioned.
Reddit mentioned “the opportunity does not conflict with our values and the rights of our Redditors,” referring to its customers and discussion board moderators.
The 19-year-old firm has filed to promote shares in its IPO at $31 to $34 every in an providing that might worth the enterprise at close to $6.5 billion. Reddit is attempting to hit the general public market throughout a traditionally sluggish interval for tech IPOs. There hasn’t been a notable venture-backed tech debut since Instacart and Klaviyo in September. And earlier than that the market had been largely shuttered since late 2021.
Reddit’s income rose 20% final 12 months to $804 million. About 98% of its gross sales got here from promoting. The remaining 2% consists of knowledge 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 mentioned within the up to date submitting.
An FTC spokesperson declined to remark.
Reddit mentioned it entered into some data-licensing offers in January with a complete contract worth of $203 million over two to a few years. It expects to acknowledge at the very least $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 big entry to knowledge to coach its AI fashions, amongst different makes use of.
“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 corporate mentioned in its prospectus.
Reddit mentioned it is “not surprised that the FTC has expressed interest” within the matter, contemplating “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 mentioned. “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.”
Reddit famous that any dealings with regulators might be “lengthy and unpredictable” and will end in “substantial costs” and different probes and product modifications that would “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 enterprise was on the middle of a widespread protest from Reddit moderators, who have been upset over the summer time when the corporate introduced a pricing change impacting some third-party builders utilizing its software programming interface, or API, to construct apps.
The corporate mentioned on the time that the API value hike was essential to make sure that it was adequately compensated by tech firms like Google and OpenAI, which siphon large quantities of Reddit knowledge to assist practice and enhance the capabilities of their AI fashions. However a number of builders complained that the API replace proved too expensive for them to proceed working their Reddit apps, which some Redditors used to assist them average discussions.
