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Reddit Faces FTC Inquiry Over AI Data Ahead of IPO
March 18, 2024
In a recent update to its initial public offering (IPO) prospectus, Reddit disclosed that it’s under investigation by the Federal Trade Commission (FTC) regarding its data-licensing practices for training artificial intelligence (AI) systems.
The FTC’s inquiry, disclosed in a letter received on March 14, 2024, focuses on Reddit’s sale, licensing, or sharing of user-generated content with third parties for AI model training purposes. This revelation comes as Reddit gears up to go public, with “plans to trade on the New York Stock Exchange under the ticker symbol ‘RDDT.’”
While Reddit primarily relies on online advertising for revenue, it’s exploring other avenues, including data licensing. According to the IPO filing, the company sees potential in this area without compromising its core values or the rights of its users.
The IPO aims to offer shares at $31 to $34 each, valuing Reddit at nearly $6.5 billion. This move comes amidst a sluggish period for tech IPOs, with few notable debuts since late 2021.
Last year, Reddit generated $804 million in revenue, primarily from advertising. Data licensing contributed a mere 2% to its sales, with the company expecting to recognize $66.4 million from recent deals in 2024.
In light of its data-licensing initiatives, Reddit is engaged in discussions with regulators. The company asserts that it hasn’t engaged in unfair or deceptive trade practices, but acknowledges the complexity of evolving data privacy laws and regulations.
The spotlight on Reddit’s data practices intensified following a pricing change announcement affecting third-party developers using its API. This move sparked protests from Reddit moderators, who expressed concerns over the affordability of maintaining their apps. Reddit justified the price adjustment as necessary compensation for companies like Google and OpenAI, which rely on Reddit data to enhance their AI models.
While the outcome of the FTC inquiry remains uncertain, Reddit acknowledges potential disruptions to its business operations and financial prospects. However, it remains steadfast in its commitment to navigating regulatory challenges and advancing its data-licensing initiatives.
As Reddit inches closer to its IPO, the scrutiny surrounding its AI data practices underscores the evolving landscape of digital platforms and their responsibilities in managing user-generated content and data.
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