Earlier this summer “Backrooms”, a horror flick, became one of the most successful independent films ever made, grossing $393m from a $10m budget. Its source material was unusual: a collection of images of unnervingly empty rooms that spread on Reddit, an internet forum. Hollywood producers have since taken to trawling the site for inspiration.
It wants more cash for its data—and more of people’s time (AP Photo)
Reddit has had a difficult time of late. Its share price has dropped by about a third this year. Strong quarterly earnings last month failed to cheer shareholders, who fret that the company will suffer as users turn to artificial-intelligence chatbots for information, rather than search engines such as Google that direct them to other sites. For now Reddit is attempting to cajole chatbot-makers into paying more for its data, both through deals and lawsuits. But eventually it hopes bot-weary users will return to one of the internet’s last refuges of human-generated content.
Reddit’s business model lies somewhere between Instagram (which profits off user-generated content) and Wikipedia (which relies on an army of volunteer moderators). That balance has sometimes been tricky to manage. In 2023 the volunteers who moderate its “subreddits” went on a multi-day strike after the company said it would charge for access to its application programming interface, on which independent developers who build Reddit-based apps rely. The platform, which stuck with the policy, may have had larger clients in mind. Soon afterwards it struck deals with Google and OpenAI, maker of ChatGPT, which reportedly agreed to pay $60m and $70m a year, respectively, to train their models on Reddit’s data.
They may have got themselves a bargain. Reddit has become the most-cited source by many of the leading American chatbots, according to an analysis the company commissioned from Profound, a research firm. One particularly valuable use of its data is for generating product recommendations. About 40% of conversations on the site relate to commercial activity including shopping, says Jen Wong, Reddit’s operations chief. On subreddits such as r/BuyItForLife, users debate the quality of products—and try to weed out sponsored or bot-generated content—making the results a rare source of high-quality reviews. AI models rely heavily on such content to generate their own recommendations, which chatbot-makers hope to turn into a source of ad revenue.
Google’s relationship with Reddit in particular has become less of a two-way exchange. For years Google’s ranked search results have been an important source of traffic for the chat site. But as the tech giant shifts users’ focus to its AI overviews, referrals have dropped precipitously. Reddit’s stock took its largest-ever single-day plunge last month after it said that “choppy” search referrals had hurt traffic. Last quarter the amount of time users spent on Reddit’s app each day was down by 8% from a year earlier, compared with gains of 6% and 4% for Instagram and TikTok, respectively, according to Sensor Tower, a data provider.
One option for Reddit is to bargain for a better deal with AI providers. It has been negotiating new agreements with Google and others. If that does not work, lawsuits may. Reddit has already sued Anthropic, another model-maker, and Perplexity, an AI search engine. Both suits allege that the companies scraped Reddit’s data illegally. (Anthropic and Perplexity have said they did not break the law.) Victory in court—or lucrative settlements—would give the chat site greater leverage in negotiations over licensing its data.
Ultimately, though, Reddit hopes to lessen its reliance on other tech firms. Traffic from search is “not where our business lives”, said Steve Huffman, its boss, in last month’s earnings call. Instead the company hopes to encourage more users to visit its site directly, and spend more time browsing once there. That would further boost its ad revenue, which grew by 64% in the second quarter, year on year. Ms Wong is optimistic that the (mostly) human content on Reddit will appeal to users as they grow tired of interacting with chatbots. Aspiring film-makers need not fear being starved of material just yet.
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