Reddit said Friday that the Federal Trade Commission sent the company a letter related to its data licensing business related to the training of artificial intelligence systems.
“On March 14, 2024, we received a letter from the FTC informing us that FTC staff were conducting a nonpublic investigation focused on our selling, licensing, or sharing of user-generated content with third parties for the purpose of training artificial intelligence models. ,” Reddit said in an updated IPO prospectus. Reddit filed for an initial public offering in February and plans to list on the New York Stock Exchange under the ticker “RDDT.”
Although Reddit’s core business relies on online advertising, the company is looking for other ways to make money and is in the “early stages” of “data licensing efforts,” the filing said.
Reddit said “this opportunity does not conflict with our values or the rights of Reddit users,” referring to its users and forum moderators.
The 19-year-old company has filed to sell its IPO shares at $31 to $34 per share, an offering that would value the company at nearly $6.5 billion. Reddit is trying to hit the public markets at a time when tech IPOs are in a historic downturn. There hasn’t been a high-profile venture-backed tech debut since. Instant shopping cart and Clavijo in September. Prior to this, the market had been largely closed since late 2021.
Reddit’s revenue grew 20% last year to $804 million. About 98% of sales come from advertising. The remaining 2% includes material licensing.
“These plans may result in the evolution of how we regulate this data and involve complex and evolving data privacy and data protection, misappropriation, and intellectual property laws, rules and regulations,” Reddit said in the updated filing.
A spokesman for the Federal Trade Commission declined to comment.
Reddit said it signed data licensing deals in January worth a total of $203 million for two to three years. At least $66.4 million is expected to be recognized in 2024 from these agreements.
The same week that Reddit filed for an IPO, Google declare The expanded partnership gives the search giant access to data to train its artificial intelligence models and other uses.
“We believe our growing platform data will become a key element in leading large language model (‘LLM’) training and serve as an additional revenue channel for Reddit,” the company said in its prospectus.
Reddit said it was “not surprising” that the FTC would be interested given “the novelty of these technologies and commercial arrangements.”
“We do not believe we have engaged in any unfair or deceptive trade practices,” Reddit said. “This letter indicates that FTC staff are interested in meeting with us to learn more about our program, and The FTC intends to request information and documents from us as its investigation continues.”
Reddit noted that any dealings with regulators could be “lengthy and unpredictable” and could result in “substantial costs” as well as 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 adversely affect our business, results of operations, financial condition and prospects.”
Reddit’s data licensing business has been the focus of widespread outcry among Reddit moderators, who were upset this summer when the company announced price changes that affected some third-party developers who use its application programming interface (API) to build apps.
The company said at the time that the API price increase was necessary to ensure it had access to technology companies such as Google OpenAI draws on vast amounts of Reddit material to help train and improve the capabilities of artificial intelligence models. But some developers complained that API updates proved too costly for them to continue operating the Reddit apps, which some Reddit users use to help them moderate discussions.
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