FTC Probes Reddit's AI Data Practices as Company Moves Toward IPO

Reddit has disclosed that the Federal Trade Commission (FTC) is examining the company's practices around selling, licensing, or sharing user-generated content for artificial intelligence (AI) model training. This revelation was made public through an updated prospectus for Reddit's impending Initial Public Offering (IPO) released on Friday. The platform, which is a staple in social media and online communities, received a letter from the FTC on March 14, 2024, signaling the start of a non-public inquiry into their data practices.

The Inquiry Ahead of Reddit's IPO

Having filed for an IPO back in February, Reddit is working towards a listing on the New York Stock Exchange with the proposed ticker 'RDDT.' Pricing for shares has been estimated at $31 to $34, potentially valuing the company at approximately $6.5 billion. This move towards going public comes amidst a slowdown in tech IPOs, making Reddit's case particularly momentous.

Reddit's Financial Standing and Data Licensing

Despite a 20% increase in revenue totaling $804 million last year, the vast majority of Reddit's income, around 98%, is generated through advertising. Data licensing comprises the remaining portion, denoting a relatively unexplored revenue channel for the company at this early stage. Reddit's recent data licensing transactions have a projected value of $203 million over two to three years, and at least $66.4 million of this is expected to contribute to their 2024 earnings.

Regulatory Scrutiny and Potential Implications

Regulatory attention is not unexpected given the novel nature of data licensing for AI training. Reddit asserts that its operations comply with the law and has not engaged in unfair or deceptive practices. However, investigation outcomes are uncertain and may lead to policy shifts or influence business operations and financial conditions. This FTC probe might herald a period of more stringent regulation in the data licensing landscape, particularly concerning user-generated content and its use in AI applications.

FTC, IPO, AI