Reddit's Licensing Practices Under Investigation by FTC Ahead of IPO

The Federal Trade Commission (FTC) opened an inquiry into Reddit's licensing practices ahead of the social media platform's initial public offering (IPO).

On Friday, Reddit said that the FTC opened the inquiry into the company's sale, licensing, or sharing of its users' posts and other content to outside organizations for use in training artificial intelligence (AI) models.

FTC Investigations Reddit's Licensing Practices

The social media firm disclosed the FTC inquiry in a filing with the Securities and Exchange Commission that cited a letter from the agency that was dated Thursday. In the filing, Reddit said that given the novel nature of the technologies and commercial arrangements, they were not surprised that the FTC expressed interest in the area.

The social media company added that it did not believe that it engaged in any unfair or deceptive trade practice despite the scrutiny. Similar to other social media platforms, Reddit has expressed interest in business deals where AI companies would pay to access databases of human-written text that their models can use to refine their abilities, according to ABC News.

These include conversing, answering questions, and producing written work and images on request of users. Nearly a month ago, Reddit announced a $60 million deal with tech giant Google for that exact purpose. That particular deal would also give the social media company access to Google AI models so that it could improve its internal site search and other features.

However, Reddit officials have declined to comment or answer questions regarding the deal beyond a written statement. The disclosure of the FTC inquiry on Friday comes as the company is preparing to sell shares to the public for the first time in what is considered to be one of the largest IPOs so far this year.

The social media company, which is based in San Francisco, filed paperwork on Monday that projected a price for its IPO valuing the 18-year-old platform at up to $6.4 billion, said the Washington Post.

Making Profits in Other Ways

While Reddit's core business relies on online advertising, it was also seeking to make profits in other ways. This comes as it is in the early stages of its "data licensing efforts," as revealed in the recent filing.

Referring to its users and forum moderators, the company said that the opportunity did not conflict with the platform's values and the rights of its Redditos. In its latest IPO plan, it seeks to sell more than 20 million shares priced at $31 to $34 each.

The IPO comes as there has not been a notable venture-backed tech debut since Instacart and Klaviyo in September last year. Prior to those, the market had been largely shuttered since late 2021.

Last year, Reddit's revenue increased by 20% to $804 million and roughly 98% of its sales came from advertising. The remaining 2% includes data licensing. The social media company said that it entered into some data-licensing deals in January earlier this year. It contracted a total value of $203 million over the last two to three years, according to CNBC.