Reddit’s prospects because it barrels towards a inventory market itemizing have much more to do with relationships with AI distributors resembling OpenAI than one would possibly count on.
In its IPO prospectus filed at present with the U.S. Securities and Alternate Fee, Reddit repeatedly emphasised how a lot it thinks it stands to realize — and has gained — from information licensing agreements with the businesses coaching AI fashions on its over 1 billion posts and greater than 16 billion feedback.
“In January 2024, we entered into sure information licensing preparations with an mixture contract worth of $203.0 million and phrases starting from two to 3 years,” the prospectus reads. “We count on a minimal of $66.4 million of income to be acknowledged throughout the yr ending December 31, 2024 and the remaining thereafter.”
Now, it’s a thriller as to which AI distributors are licensing information from Reddit up to now. Earlier this week, Bloomberg and Reuters reported {that a} “giant unnamed AI firm” — possibly Google — had entered right into a licensing settlement value about $60 million on an annualized foundation. However OpenAI wouldn’t be a shocking buyer both, particularly contemplating that OpenAI CEO Sam Altman has an 8.7% stake in Reddit (making him the third-largest shareholder) and was as soon as a member of the corporate’s board of administrators.
Why’s Reddit information worthwhile? As Reddit explains, AI fashions “be taught” from examples to craft essays, code, emails, articles and extra, and distributors like OpenAI scrape the net for hundreds of thousands to billions of those examples so as to add to their coaching units. Some examples are within the public area. Others aren’t, or — within the case of Reddit content material — come underneath restrictive licenses that require quotation or particular types of compensation.
Reddit beforehand didn’t gate entry to its information for AI coaching functions. However it reversed course final yr, arguing that its information shouldn’t be — in CEO Steve Huffman’s phrases — “[given] to among the largest corporations on the earth totally free.”
“[Our] information APIs are capable of present real-time entry to evolving and dynamic subjects resembling sports activities, motion pictures, information, trend, and the newest developments,” the prospectus continues. “We consider that Reddit’s large corpus of conversational information and data will proceed to play a task in coaching and bettering giant language fashions. As our content material refreshes and grows each day, we count on fashions will wish to replicate these new concepts and replace their coaching utilizing Reddit information.”
Content material producers, from inventory media libraries to information publishers, are more and more turning to information licensing agreements with AI distributors as chatbots like OpenAI’s ChatGPT and Google’s Gemini threaten to sap site visitors. A current mannequin from The Atlantic found that, if a search engine like Google have been to combine AI into search, it’d reply a consumer’s question 75% of the time with out requiring a click-through to its web site.
Distributors, in flip, have been spurred to pursue licensing agreements as they face a deluge of lawsuits alleging that they haven’t any authorized justification for coaching their fashions on information with out permission or fee. Just lately, The New York Occasions accused OpenAI of successfully constructing information writer rivals utilizing its works, harming its enterprise.
OpenAI, for one, has agreements in place with picture gallery Shutterstock in addition to publishers together with Axel Springer, the proprietor of Politico and Enterprise Insider. The licenses are reported to be fairly small, nonetheless — topping out at $5 million per yr.