Reddit Under Scrutiny for Data-Licensing Practices

Recently, Reddit disclosed that it had received a letter from the Federal Trade Commission (FTC) regarding its data-licensing operations that are related to the training of artificial intelligence (AI) systems. The company’s updated initial public offering prospectus revealed that the FTC’s staff is conducting a non-public inquiry into Reddit’s sale, licensing, or sharing of user-generated content with third parties in order to train AI models. This inquiry comes as Reddit is in the process of going public, with plans to list on the New York Stock Exchange under the ticker symbol “RDDT.”

Despite its core business model being centered around online advertising, Reddit has been actively exploring other revenue streams, including data licensing. The company mentioned in its filing that it is in the “early stages” of its data licensing efforts, which it believes do not contradict its core values and the rights of its users and moderators. Reddit has already entered into data-licensing deals worth $203 million over two to three years, with expected revenues of $66.4 million from these agreements in 2024.

Reddit acknowledged the potential regulatory challenges and uncertainties associated with its data-licensing business. The company recognized that these programs could subject them to evolving data privacy, protection, misappropriation, and intellectual property laws, rules, and regulations. The prospect of dealing with regulators could lead to substantial costs, changes in policies and practices, and potential disruptions to its business operations.

In response to the FTC inquiry, Reddit maintained that it had not engaged in any unfair or deceptive trade practices. The company expressed willingness to cooperate with the FTC by providing information and documents as required. Reddit recognized that the unique nature of their data-licensing activities and commercial arrangements might have sparked the interest of regulators, given the novel technologies involved.

Reddit’s data-licensing practices, particularly its deals with third parties and tech giants like Google, have faced criticism from the platform’s moderators. Over the summer, Reddit moderators protested against a pricing change that affected third-party developers using Reddit’s API to build apps. The company justified the price adjustment as necessary to ensure fair compensation for the data being utilized by companies like Google and OpenAI for AI model training. However, developers argued that the API update made it too expensive for them to maintain their Reddit apps, which were crucial for moderating discussions on the platform.

Reddit’s foray into data licensing has raised eyebrows, leading to regulatory scrutiny and backlash from its own moderators. As the company prepares to go public, it must navigate these challenges carefully to ensure compliance with regulations, maintain trust with its users, and secure its position in the growing AI market. The outcome of the FTC inquiry and the response from Reddit will be crucial in determining the future trajectory of its data-licensing endeavors.

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