Reddit Announces a Revenue of $203M from Data Licensing

Reddit’s future, as it fast tracks towards a public listing on the stock exchange, has more to do with its relationship with AI vendors such as OpenAI than you might initially assume.

The IPO prospectus that Reddit submitted today to the U.S. Securities and Exchange Commission underscores the value Reddit places on its data licensing agreements with firms that train AI models on its extensive data – over 1 billion posts and more than 16 billion comments.

The document states, “In January 2024, we solidified certain data licensing agreements, with a collective contract value of $203.0 million and durations spanning two to three years. We anticipate recognizing at least $66.4 million of this as revenue during 2024 with the remainder recognized in subsequent years.”

It remains unclear which AI vendors have currently licensed data from Reddit. Previous reporting this week from Bloomberg and Reuters indicated that a “major unnamed AI company”—potentially Google—had signed a licensing agreement valued around $60 million annually. However, OpenAI might be another likely counterpart, given that its CEO Sam Altman owns an 8.7% equity interest in Reddit, making him the third-largest shareholder. He was also previously a member of Reddit’s board of directors.

Reddit’s data is inherently valuable due to the fact that Artificial Intelligence models use examples to generate written pieces such as essays, code, articles, emails and more. Large entities such as OpenAI gather millions to billions of such examples from the internet for their training sets. Some of these examples are readily available in the public domain, others, including content from Reddit, may come with restrictive licenses mandating reference citations or specific types of remuneration.

According to previous practices, Reddit did not limit access to its data for the purposes of AI training. However, the policy was changed last year with Reddit’s CEO, Steve Huffman, arguing that the platform’s data should not be handed over to some of the world’s largest corporations for free.

With Reddit’s APIs capable of providing real-time access to a constantly changing spectrum of topics, such as sports, movies, current news, fashion, and latest trends, the company believes that its vast collection of conversational data will continue to play a significant role in training and refining language models. As the content continually evolves and grows, models are expected to mirror these fresh ideas and update their training utilizing Reddit data.

The world of content production, ranging from stock media libraries to news publishers, is progressively leaning towards data licensing agreements with AI entities. This is due to the rise of chatbots like OpenAI’s ChatGPT, and Google’s Gemini. They pose a potential detriment to traffic generation. An emerging model design by The Atlantic revealed that if a search engine like Google were to incorporate AI into its search function, it would respond to a user’s queries 75 percent of the time without necessitating a click-through to the website.

Vendors are being driven to seek licensing agreements as they are inundated with lawsuits claiming that they have no legal basis for training their models on data without consent or remuneration. OpenAI was recently criticized by The New York Times for essentially creating competition for news publishers with its own works, damaging its business.

OpenAI has established agreements with image gallery Shutterstock and publishers such as Axel Springer, the proprietor of Politico and Business Insider. Although, the licenses’ value is said to be quite minimal, with a ceiling of $5 million annually.

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