9 months ago
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Reddit’s prospects as it barrels toward a stock market listing have a lot more to do with relationships with AI vendors such as OpenAI than one might expect.
In its IPO prospectus filed today with the U.S. Securities and Exchange Commission, Reddit repeatedly emphasized how much it thinks it stands to gain — and has gained — from data licensing agreements with the companies training AI models on its over one billion posts and over 16 billion comments.
“In January 2024, we entered into certain data licensing arrangements with an aggregate contract value of $203.0 million and terms ranging from two to three years,” the prospectus reads. “We expect a minimum of $66.4 million of revenue to be recognized during the year ending December 31, 2024 and the remaining thereafter.”
Now, it’s a mystery as to which AI vendors are licensing data from Reddit so far. Earlier this week, Bloomberg and Reuters reported that a “large unnamed AI company” — possibly Google – had entered into a licensing agreement worth about $60 million on an annualized basis. But OpenAI wouldn’t be a surprising customer either, especially considering that OpenAI CEO Sam Altman has a 8.7% stake in Reddit (making him the third-largest shareholder) and was once a member of the company’s board of directors.
Why’s Reddit data valuable? As Reddit explains, AI models “learn” from examples to craft essays, code, emails, articles and more, and vendors like OpenAI scrape the web for millions to billions of these examples to add to their training sets. Some examples are in the public domain. Others aren’t, or — in the case of Reddit content – come under restrictive licenses that require citation or specific forms of compensation.
Reddit previously didn’t gate access to its data for AI training purposes. But it reversed course last year, arguing that its data shouldn’t be — in CEO Steve Huffman’s words — “[given] to some of the largest companies in the world for free.”
“Reddit data is a foundational piece to the construction of current AI technology and many large language models,” the prospectus continues. “We believe that Reddit’s massive corpus of conversational data and knowledge will continue to play a role in training and improving large language models. As our content refreshes and grows daily, we expect models will want to reflect these new ideas and update their training using Reddit data.”
Content producers, from stock media libraries to news publishers, are increasingly turning to data licensing agreements with AI vendors as chatbots like OpenAI’s ChatGPT threaten to sap traffic. A recent model from The Atlantic found that, if a search engine like Google were to integrate AI into search, it’d answer a user’s query 75% of the time without requiring a click-through to its website.
Vendors, in turn, have been spurred to pursue licensing agreements as they face a deluge of lawsuits alleging that they have no legal basis for training their models on data without permission or payment. Recently, The New York Times accused OpenAI of effectively building news publisher competitors using its works, harming its business.
OpenAI has agreements in place with Shutterstock as well as publishers including Axel Springer, the owner of Politico and Business Insider. The licenses are reported to be quite small, however — topping out at $5 million per year.
