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Reddit Faces FTC Investigation Over Data Licensing for AI
Social media behemoth Reddit recently disclosed that it is currently the subject of an investigation by the Federal Trade Commission (FTC) regarding its data licensing practices for artificial intelligence (AI) training. This revelation comes as the company gears up for its highly anticipated initial public offering. The disclosure was made in an amended S-1 registration statement filed with the Securities and Exchange Commission, the day after the FTC inquiry was received.
According to the filing, Reddit received a letter from the FTC on March 14, 2024, notifying them that the FTC’s staff is conducting a non-public inquiry focused on Reddit’s sale, licensing, or sharing of user-generated content with third parties for AI model training purposes. Reddit expressed that due to the innovative nature of these technologies and commercial arrangements, the FTC’s interest in this area was expected. Reddit firmly stated in the filing that they do not believe they have engaged in any unfair or deceptive trade practices.
Partnership with Google and Concerns
In February, Reddit inked a $60 million per year deal with Google, granting the search giant access to Reddit’s extensive pool of user data to train its AI models. This partnership deepens the relationship between the two companies, with Reddit gaining increased visibility on Google’s platform in exchange for its valuable data. Google highlighted the benefits of this collaboration, emphasizing efficient access to fresh information through the Reddit Data API and enhanced signals for improved understanding and utilization of Reddit content.
Reddit, known for its 100,000 active communities and substantial daily post and comment volumes, considers its data a crucial asset in the rapidly expanding AI market. The company views its growing platform data as integral to training large language models (LLMs) and as an additional revenue stream. However, the practice of licensing user data for AI purposes has raised concerns among privacy advocates and regulatory bodies. Reddit acknowledged in its filing that its data licensing initiatives are in early stages and are subject to evolving regulations.
AI Ambitions and Regulatory Challenges
Reddit’s IPO plans included investments in Bitcoin and Ethereum as part of its balance sheet strategy, along with acquisitions of Ethereum and Polygon (MATIC) for virtual goods transactions on its platform. These moves align with Reddit’s broader strategy to capitalize on AI and cryptocurrency markets. International Data Corporation estimates project the global AI market to reach $1 trillion by 2027, even excluding China and Russia, with a 20% compound annual growth rate.
Despite Reddit’s confidence in compliance with laws, the FTC investigation underscores the regulatory hurdles the company faces in leveraging the AI surge. Reddit foresees potential significant costs and risks associated with regulatory engagement, including reputational harm, fines, operational modifications, diversion of resources, and other adverse impacts on its business, financial performance, and future prospects.
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