Social media giant Reddit says it is under investigation by the Federal Trade Commission (FTC) over its data licensing practices for artificial intelligence training. The disclosure comes as the company prepares for its long-awaited initial public offering (IPO).
This appeared in an amended S-1 registration statement filed with the Securities and Exchange Commission yesterday, filed the day after the FTC investigation was filed.
“On March 14, 2024, we received a letter from the FTC informing us that FTC staff was conducting a private investigation focused on the sale, licensing, or sharing of user-generated content with third parties to train AI models.” Reddit stated in the filing. “Given the novel nature of these technologies and commercial contracts, it is not surprising that the FTC has expressed interest in this area.
“We do not believe that we have engaged in unfair or deceptive trade practices,” the filing states.
The FTC investigation stemmed from a $60 million-a-year deal Reddit signed with Google in February that allowed the search giant to access Reddit’s vast user data to train AI models. The deal deepens the relationship between the two companies, giving Reddit increased visibility on Google platforms in exchange for providing valuable data.
At the time of the announcement, Google said, “Through the Reddit Data API, we can now access more new information efficiently and systematically.” “We also have enhanced signals to help us better understand, educate, and use Reddit content and representation in the most accurate and relevant way.”
Reddit, which boasts over 100,000 active communities and averages 1.2 million posts and 7.5 million comments daily, sees its data as a key asset in the fast-growing AI market. “We believe that growing platform data will become a key component of leading Large Language Model (“LLM”) training and will serve as an additional revenue generation channel for Reddit,” the company said in its prospectus.
But licensing user data for AI has raised concerns among privacy advocates and regulators. Reddit acknowledged in its filing that its data licensing efforts are still in the early stages and regulations are evolving.
“These programs may apply evolving approaches to data regulation and may involve complex and evolving data privacy and data protection, abuse, and intellectual property laws, rules and regulations,” the company said.
This isn’t the first time Reddit’s AI ambitions have made headlines. As part of its IPO plans, the company said it invested in Bitcoin and Ethereum as part of its balance sheet strategy ahead of the IPO. The filing also revealed that Reddit acquired Ethereum and Polygon (MATIC) to pay for virtual goods on the platform.
“We have invested some of our excess cash reserves in Bitcoin and Ethereum, and have also acquired Ethereum and Matic as payment for the sale of certain virtual goods, which will continue in the future,” the company said.
Reddit’s move into the world of AI and cryptocurrency comes as the company seeks to capitalize on the growing market for these technologies. Excluding China and Russia, the global AI market is expected to reach $1 trillion by 2027, at a compound annual growth rate of 20%, Reddit said, citing estimates from the International Data Corporation.
But the FTC investigation highlights the regulatory challenges Reddit faces as it seeks to capitalize on the AI boom. Despite the company’s assurances that it did not break any laws, Reddit acknowledged that the investigation could be long and unpredictable.
“Any regulatory participation may result in significant costs, and regulatory participation may result in reputational harm, fines, discontinuation or modification of products, services, features, or changes in policies or practices. “It could result in a violation of the law, divert management and other resources from our business, or otherwise have an adverse effect on our business, results of operations, financial condition and prospects,” Reddit denied in the filing.
