Reddit Reveals FTC Investigation into AI Data Licensing Ahead of IPO

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Social media giant Reddit has revealed that it is under investigation by the Federal Trade Commission (FTC) over its data licensing practices for artificial intelligence training. The revelation comes as the company prepares for its long-awaited initial public offering.

The disclosure was made in an amended S-1 registration statement filed yesterday with the Securities and Exchange Commission, which was filed the day after receiving the FTC inquiry.

“On March 14, 2024, we received a letter from the FTC advising us that FTC staff may not allow our sale, licensing, or sharing of user-generated content with third parties to train AI models. is conducting a non-public inquiry focused on Reddit said in a filing. “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 we have engaged in any unfair or deceptive trade practices,” the filing notes.

The FTC investigation follows Reddit’s $60 million-a-year deal with Google in February, giving the search giant access to Reddit’s vast trove of user data to train its AI models. The deal deepens the relationship between the two companies, with Reddit getting more visibility on Google’s platform in exchange for its valuable data.

“With the Reddit Data API, Google will now have efficient and organized access to up-to-date information,” Google said at the time of the announcement. “As well as better signals that will help us better understand and display, train, and otherwise use Reddit content in the most accurate and relevant ways.”

Reddit, which boasts more than 100,000 active communities and averages 1.2 million posts and 7.5 million comments per day, sees its data as a key asset in the fast-growing AI market. “We believe the data from our growing platform will be a key factor in training large language models (“LLMs”) and serve as an additional monetization channel for Reddit,” the company said in its prospectus. .

However, licensing user data for AI has raised concerns among privacy advocates and regulators. In its filing, Reddit acknowledged that its data licensing efforts are still in the early stages and subject to evolving regulations.

“These programs may subject us to evolving approaches to the regulation of this data and may be affected by complex and evolving data privacy and data protection, misuse, and intellectual property laws, regulations and rules,” the company said. are.”

This isn’t the first time Reddit’s AI ambitions have made headlines. As part of its IPO plans, the company said it has invested in Bitcoin and Ethereum as part of its pre-IPO balance sheet strategy. The filing also revealed that Reddit acquired Ethereum and Polygon (MATIC) to pay for virtual goods on its platform.

“We have invested some of our excess cash reserves in Bitcoin and Ether and have also received Ether and Matic as a form of payment for the sale of certain virtual goods, which we may continue to do in the future,” the company said. are.”

Reddit’s foray into the world of AI and cryptocurrency comes as the company tries to tap into the growing market for these technologies. Citing estimates from the International Data Corporation, Reddit notes that the global AI market – even without China and Russia – is expected to reach $1 trillion by 2027, with an annual growth rate of 20%.

However, the FTC investigation highlights the regulatory challenges Reddit faces as it seeks to capitalize on the AI ​​boom. Despite the company’s confidence that it hasn’t broken any laws, Reddit acknowledged that the inquiry could be lengthy and unpredictable.

“Any regulatory engagement could cause us to incur substantial costs, and it is possible that any regulatory engagement could result in reputational damage or fines, requiring us to discontinue or discontinue our products, services, features, or functions. cause us to modify, require us to change our policies, conduct, management and other resources from our business, or otherwise adversely affect our business, results of operations, financial condition and prospects. impact,” Reddit announced in the filing.

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