Reddit cashes in on AI gold rush with $203M in LLM training license fees

Two- to three-year deals with Google, others, come amid legal uncertainty over “fair use.”

Kyle Orland – Feb 23, 2024 12:13 pm | 112

"Reddit Gold" takes on a whole new meaning when AI training data is involved. Credit: iStock / Getty Images

The last week saw word leak that Google had agreed to license Reddit’s massive corpus of billions of posts and comments to help train its large language models. Now, in a recent Securities and Exchange Commission filing, the popular online forum has revealed that it will bring in $203 million from that and other unspecified AI data licensing contracts over the next three years.

Reddit’s Form S-1—published by the SEC late Thursday ahead of the site’s planned stock IPO—says the company expects $66.4 million of that data-derived value from LLM companies to come during the 2024 calendar year. Bloomberg previously reported the Google deal to be worth an estimated $60 million a year, suggesting that the three-year deal represents the vast majority of its AI licensing revenue so far.

Google and other AI companies that license Reddit’s data will receive “continuous access to [Reddit’s] data API as well as quarterly transfers of Reddit data over the term of the arrangement,” according to the filing. That constant, real-time access is particularly valuable, the site writes in the filing, because “Reddit data constantly grows and regenerates as users come and interact with their communities and each other.”

“Why pay for the cow…?”

While Reddit sees data licensing to AI firms as an important part of its financial future, its filing also notes that free use of its data has already been “a foundational part of how many of the leading large language models have been trained.” The filing seems almost bitter in noting that “some companies have constructed very large commercial language models using Reddit data without entering into a license agreement with us.”

That acknowledgment highlights the still-murky legal landscape over AI companies’ penchant for scraping huge swathes of the public web for training purposes, a practice those companies defend as fair use. And Reddit seems well aware that AI models may continue to hoover up its posts and comments for free, even as it tries to sell that data to others.

“Some companies may decline to license Reddit data and use such data without license given its open nature, even if in violation of the legal terms governing our services,” the company writes. “While we plan to vigorously enforce against such entities, such enforcement activities could take years to resolve, result in substantial expense, and divert management’s attention and other resources, and we may not ultimately be successful.”

Yet the mere existence of AI data licensing agreements like Reddit’s may influence how legal battles over this kind of data scraping play out. As Ars’ Timothy Lee and James Grimmelmann noted in a recent legal analysis, the establishment of a settled licensing market can have a huge impact on whether courts consider a novel use of digitized data to be “fair use” under copyright law.

“The more [AI data licensing] deals like this are signed in the coming months, the easier it will be for the plaintiffs to argue that the ‘effect on the market’ prong of fair use analysis should take this licensing market into account,” Lee and Grimmelmann wrote.

And while Reddit sees LLMs as a new revenue opportunity, the site also sees their popularity as a potential threat. The S-1 filing notes that “some users are also turning to LLMs such as ChatGPT, Gemini, and Anthropic” for seeking information, putting them in the same category of Reddit competition as “Google, Amazon, YouTube, Wikipedia, X, and other news sites.”

After filing for its IPO in late 2021, reports suggest Reddit is aiming to hit the stock market next month officially. The company will offer users and moderators with sufficient karma and/or activity on the site the opportunity to participate in that IPO through a directed share program.

Advance Publications, which owns Ars Technica parent Condé Nast, is the largest shareholder of Reddit.