Reddit said on Friday that the Federal Trade Commission sent a letter to the company about its data licensing business related to training AI systems.
“On March 14, 2024, we received a letter from the FTC informing us that FTC staff was conducting a non-public investigation focused on our selling, licensing, or sharing of user-generated content with third parties to train artificial intelligence models.” Reddit said in its updated IPO prospectus. Reddit filed to go public in February, and plans to trade on the New York Stock Exchange under the ticker symbol “RDDT.”
Although Reddit's core business is online advertising, the company seeks to make money in other ways, and is in the “early stages” of “data licensing efforts,” the filing said.
“The opportunity does not conflict with our values and the rights of Redditors,” Reddit said, referring to its users and forum moderators.
The 19-year-old company has filed to sell its IPO shares at between $31 and $34 per share in an offering that would value the company at nearly $6.5 billion. Reddit is trying to reach the public market during a historically slow period for tech IPOs. There has been no notable venture-backed technological emergence since then Instacart And Clavio in September. Before that, the market had been largely closed since late 2021.
Reddit's revenue rose 20% last year to $804 million. About 98% of its sales came from advertising. The remaining 2% includes data licensing.
“These programs may subject us to sophisticated methods of organizing this data and involve complex and sophisticated data privacy, data protection, misappropriation, and intellectual property laws, rules, and regulations,” Reddit said in the updated filing.
An FTC spokesman declined to comment.
Reddit said it closed some data licensing deals in January with a total contract value of $203 million over two to three years. It expects to recognize at least $66.4 million of these agreements in 2024.
The same week that Reddit filed for its IPO, Google It announced an expanded partnership with the company, giving the search giant access to data to train its AI models, among other uses.
“We believe our growing platform data will be a key component in training leading large language models (“LLMs”) and serve as an additional monetization channel for Reddit,” the company said in the prospectus.
Reddit said it was “not surprising that the FTC has expressed interest” in the matter, considering “the new nature of these technologies and commercial arrangements.”
“We do not believe we have engaged in any unfair or deceptive business practices,” Reddit said. “The letter indicated that the FTC staff is interested in meeting with us to learn more about our plans and that the FTC intends to request information and documents from us as its investigation continues.”
Reddit noted that any dealings with regulators could be “prolonged and unpredictable” and could result in “significant costs,” other investigations and product changes that could “require us to change our policies or practices, divert management and other resources from our business, or otherwise “It will adversely affect our business, results of operations, financial condition and prospects.”
Reddit's data licensing business has been at the center of a widespread outcry from Reddit moderators, who were upset over the summer when the company announced a pricing change affecting some third-party developers who use its application programming interface, or API, to create apps.
The company said at the time that the higher API prices were necessary to ensure it was adequately compensated by technology companies such as Google and OpenAI, which pulls massive amounts of Reddit data to help train and improve the capabilities of its AI models. But many developers complained that updating the API proved too costly for them to continue running their Reddit apps, which some Redditors used to help them moderate discussions.
