On Friday, Reddit reported that the Federal Trade Commission had sent the corporate a letter regarding its data licensing activities related to training artificial intelligence systems.
“On March 14, 2024, we received a letter from the FTC informing us that FTC staff were conducting a non-public investigation regarding our sale, licensing or sharing of user-generated content with third parties for the purpose of training artificial intelligence models,” Reddit said in its updated IPO prospectus. Reddit filed for an initial public offering in February and plans to list on the New York Stock Exchange under the symbol “RDDT.”
While Reddit’s core business relies on internet advertising, the corporate is attempting to earn a living in other ways and is within the “early phases” of its “data licensing efforts,” the filing said.
Reddit stated that “the opportunity is not inconsistent with our values and the rights of our Redditors,” referring to the forum’s users and moderators.
The 19-year-old company has filed to sell shares in an initial public offering at $31 to $34 apiece in an offering that may value the corporate at nearly $6.5 billion. Reddit is attempting to hit the general public market during a historically slow period for tech IPOs. There have not been any noteworthy venture-backed tech debuts since September and in September. Previously, for the reason that end of 2021, the market was largely closed.
Reddit’s revenue rose 20% last 12 months to $804 million. About 98% of sales got here from promoting. The remaining 2% involves data licensing.
“These programs may expose us to evolving approaches to regulating this data and implicate complex and evolving laws, rules and regulations relating to privacy and data protection, misappropriation, and intellectual property,” Reddit said in an updated filing.
An FTC spokesman declined to comment on the matter.
Reddit said it entered into several data licensing agreements in January value a complete of $203 million for 2 to 3 years. It expects to acknowledge not less than $66.4 million from these contracts in 2024.
The same week that Reddit filed for an IPO, announced an expanded partnership with the corporate, giving the search giant access to, amongst other things, data to coach artificial intelligence models.
“We believe data from our growing platform will be a key component in training leading large language models (“LLMs”) and can function an extra monetization channel for Reddit,” the corporate said in its prospectus.
Reddit said it was “not surprised that the FTC has expressed interest” within the matter 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. “The letter indicated that FTC staff were interested in meeting with us to learn more about our plans, and that the FTC intended to request information and documents from us as it continued its investigation.”
Reddit noted that any interactions with regulators could possibly be “long and unpredictable” and will lead to “significant costs” and other investigations and product changes that might “require us to alter our policies or practices, divert management attention and other resources from our business or otherwise adversely affect our business, results of operations, financial condition and prospects.”
Reddit’s data licensing business was at the middle of a widespread outcry from Reddit moderators, who were upset over the summer when the corporate announced a pricing change affecting some third-party developers who use an application programming interface, or API, to construct apps.
The company said on the time that the API price hike was vital to make sure it was adequately compensated by tech corporations like OpenAI, which pull huge amounts of data from Reddit to assist train and improve the capabilities of their artificial intelligence models. However, several developers complained that updating the API was proving too expensive for them to proceed using the Reddit apps that some Redditors were using to assist them moderate discussions.
