FTC sent an inquiry letter to Reddit seeking more information about its data licensing deals with AI companies
Reddit signed a deal with Google worth $60 million per year that’ll allow the tech giant to use Reddit’s content for training its AI models
Reddit is also expected to make an additional $203 million over the next 2-3 years through other data licensing deals
On Friday, Reddit received an inquiry from The Federal Trade Commission (FTC) about its plans to license its platform to AI companies for training their language models.
Reddit struck a deal with Google in February to let them use the user-generated content on its platform for training purposes. According to reports, the contract is worth $60 million per year.
Reddit also entered other data licensing deals in January that will earn it a total of $203 million over the next 2 to 3 years. Out of this, the company expects to get at least $66.4 million by the end of this year alone.
It’s believed that Reddit is entering this deal to make up for its low revenue. While the platform itself is doing well, its revenue is nothing in comparison to some of its contemporaries such as Instagram or TikTok.
So far, Reddit’s main source of income is online advertising. For example, in 2023 it managed to earn a revenue of $804 million. 98% of this revenue came from advertising while the remaining 2% from data licensing.
Reddit’s Confident Response to FTC
Reddit feels it’s a win-win deal because it doesn’t go against the platform’s core values and allows its users to retain their rights while the company generates more income.
Given the novel nature of these technologies and commercial arrangements, we are not surprised that the FTC has expressed interest in this area. We do not believe that we have engaged in any unfair or deceptive trade practice.Reddit
As per plans, members of the FTC will meet with the Reddit team and talk about their AI deals and how they plan to use the content. They might also seek more documents, including the contract itself to get a better understanding of this collaboration.
In the updated security filing, Reddit assured that they are aware of the responsibilities that come along with this step. It will require them to do the following:
Create new data management policies and privacy protocols
Design regulations to ensure the new deal isn’t in conflict with their user’s interests
FTC’s Inquiry Amidst Reddit’s Upcoming IPO
Through the IPO, Reddit is expecting to raise at least $750 million and reach a total valuation of $6.4 billion.
What makes Reddit’s IPO even more unique is that a certain percentage of Reddit stocks will be available for moderators of the platform to buy.
Experts are rather worried about this move’s implications on other investors. This is because these users will not have to be in a lock-in period (the period during which they are not allowed to sell the stocks), so Reddit’s share value might be very volatile.
However, it looks like the company has faith in this step. Despite all criticism, Reddit has refused to budge.
Read more: Reddit includes Bitcoin, Ethereum, and Polygon to its balance sheet ahead of its IPO
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