NEW YORK, April 5 (Reuters) - At its peak in the early

2000s, Photobucket was the world's top image-hosting site. The

media backbone for once-hot services like Myspace and

Friendster, it boasted 70 million users and accounted for nearly

half of the U.S. online photo market.

Today only 2 million people still use Photobucket, according

to analytics tracker Similarweb. But the generative AI

revolution may give it a new lease of life.

CEO Ted Leonard, who runs the 40-strong company out of

Edwards, Colorado, told Reuters he is in talks with multiple

tech companies to license Photobucket's 13 billion photos and

videos to be used to train generative AI models that can produce

new content in response to text prompts.

He has discussed rates of between 5 cents and $1 dollar per

photo and more than $1 per video, he said, with prices varying

widely both by the buyer and the types of imagery sought.

"We've spoken to companies that have said, 'we need way

more,' Leonard added, with one buyer telling him they wanted

over a billion videos, more than his platform has.

"You scratch your head and say, where do you get that?"

Photobucket declined to identify its prospective buyers,

citing commercial confidentiality. The ongoing negotiations,

which haven't been previously reported, suggest the company

could be sitting on billions of dollars' worth of content and

give a glimpse into a bustling data market that's arising in the

rush to dominate generative AI technology.

Tech giants like Google, Meta and

Microsoft ( MSFT )-backed OpenAI initially used reams of data

scraped from the internet for free to train generative AI models

like ChatGPT that can mimic human creativity. They have said

that doing so is both legal and ethical, though they face

lawsuits from a string of copyright holders over the practice.

At the same time, these tech companies are also quietly

paying for content locked behind paywalls and login screens,

giving rise to a hidden trade in everything from chat logs to

long forgotten personal photos from faded social media apps.

"There is a rush right now to go for copyright holders that

have private collections of stuff that is not available to be

scraped," said Edward Klaris from law firm Klaris Law, which

says it's advising content owners on deals worth tens of

millions of dollars apiece to license archives of photos, movies

and books for AI training.

Reuters spoke to more than 30 people with knowledge of AI

data deals, including current and former executives at companies

involved, lawyers and consultants, to provide the first in-depth

exploration of this fledgling market - detailing the types of

content being bought, the prices materializing, plus emerging

concerns about the risk of personal data making its way into AI

models without people's knowledge or explicit consent.

OpenAI, Google, Meta, Microsoft ( MSFT ), Apple ( AAPL ) and Amazon ( AMZN ) all

declined to comment on specific data deals and discussions for

this article, although Microsoft ( MSFT ) and Google referred Reuters to

supplier codes of conduct that include data-privacy provisions.

Google added that it would "take immediate action, up to and

including termination" of its agreement with a supplier if it

discovered a violation.

Many major market research firms say they have not even

begun to estimate the size of the opaque AI data market, where

companies often don't disclose agreements. Those researchers who

do, such as Business Research Insights, put the market at

roughly $2.5 billion now and forecast it could grow close to $30

billion within a decade.

GENERATIVE DATA GOLD RUSH

The data land grab comes as makers of big generative AI

"foundation" models face increasing pressure to account for the

massive amounts of content they feed into their systems, a

process known as "training" that requires intensive computing

power and often takes months to complete.

Tech companies say the technology would be cost-prohibitive

if they couldn't use vast archives of free scraped web page

data, such as those provided by non-profit repository Common

Crawl, which they describe as "publicly available."

Their approach has nonetheless drawn a wave of copyright

lawsuits and regulatory heat, while prompting publishers to add

code to their websites to block scraping.

In response, AI model makers have started hedging risks and

securing data-supply chains, both through deals with content

owners and via a burgeoning industry of data brokers that has

popped up to satisfy demand.

In the months after ChatGPT debuted in late 2022, for

instance, companies including Meta, Google, Amazon ( AMZN ) and Apple ( AAPL ) all

struck agreements with stock image provider Shutterstock ( SSTK ) to use

hundreds of millions of images, videos and music files in its

library for training, according to a person familiar with the

arrangements.

The deals with Big Tech firms initially ranged from $25

million to $50 million each, though most were later expanded,

Shutterstock's ( SSTK ) Chief Financial Officer Jarrod Yahes told

Reuters. Smaller tech players have followed suit, spurring a

fresh "flurry of activity" in the past two months, he added.

Yahes declined to comment on individual contracts. The Apple ( AAPL )

agreement, and the size of the other deals, haven't previously

been made public.

A Shutterstock ( SSTK ) competitor, Freepik, told Reuters it had

struck agreements with two large tech companies to license the

majority of its archive of 200 million images at 2 to 4 cents

per image. There are five more similar deals in the pipeline,

said CEO Joaquin Cuenca Abela, declining to identify buyers.

OpenAI, an early Shutterstock ( SSTK ) customer, has also signed

licensing agreements with at least four news organizations,

including The Associated Press and Axel Springer. Thomson

Reuters, the owner of Reuters News, separately said it has

struck deals to license news content to help train AI large

language models, but didn't disclose details.

'ETHICALLY SOURCED' CONTENT

An industry of dedicated AI data firms is emerging too,

securing rights to real-world content like podcasts, short-form

videos and interactions with digital assistants, while also

building networks of short-term contract workers to produce

custom visuals and voice samples from scratch, akin to an

Uber-esque gig economy for data.

Seattle-based Defined.ai licenses data to a range of

companies including Google, Meta, Apple ( AAPL ), Amazon ( AMZN ) and Microsoft ( MSFT ),

CEO Daniela Braga told Reuters.

Rates vary by buyer and content type, but Braga said

companies are generally willing to pay $1 to $2 per image, $2 to

$4 per short-form video and $100 to $300 per hour of longer

films. The market rate for text is $0.001 per word, she added.

Images of nudity, which require the most sensitive handling,

go for $5 to $7, she said.

Defined.ai splits those earnings with content providers,

Braga said. It markets its datasets as "ethically sourced," as

it obtains consent from people whose data it uses and strips out

personally identifying information, she added.

One of the firm's suppliers, a Brazil-based entrepreneur,

said he pays owners of the photos, podcasts and medical data he

sources about 20% to 30% of total deal amounts.

The priciest images in his portfolio are those used to train

AI systems that block content like graphic violence barred by

the tech companies, said the supplier, who spoke on condition

his company wasn't identified, citing commercial sensitivity.

To fulfill those requests, he obtains images of crime

scenes, conflict violence and surgeries - mainly from police,

freelance photojournalists and medical students, respectively -

often in places in South America and Africa where distributing

graphic images is more common, he said.

He said he has received images from freelance photographers

in Gaza since the start of the war there in October, plus some

from Israel at the outset of hostilities.

His company hires nurses accustomed to seeing violent

injuries to anonymize and annotate the images, which are

disturbing to untrained eyes, he added.

'I WOULD FIND IT RISKY'

While licensing could resolve some legal and ethical issues,

resurrecting the archives of old internet names like Photobucket

as fuel for the latest AI models raises others, particularly

around user privacy, according to many of the industry players

interviewed.

AI systems have been caught regurgitating exact copies of

their training data, spitting out, for example, the Getty Images

watermark, verbatim paragraphs of New York Times articles and

images of real people. That means a person's private photos or

intimate thoughts posted decades ago could potentially wind up

in generative AI outputs without notice or explicit consent.

Photobucket CEO Leonard says he is on solid legal ground,

citing an update to the company's terms of service in October

that grants it the "unrestricted right" to sell any uploaded

content for the purpose of training AI systems. He sees

licensing data as an alternative to selling ads.

"We need to pay our bills, and this could give us the

ability to continue to support free accounts," he said.

Defined.ai's Braga said she avoids acquiring content from

"platform" companies like Photobucket and prefers to source

social media photos from influencers who create them, who she

said have a clearer claim to licensing rights.

"I would find it very risky," Braga said of platform

content. "If there's some AI that generates something that

resembles a picture of someone who never approved that, that's a

problem."

Photobucket is not alone among platforms in embracing

licensing. Tumblr's parent company Automattic said last month it

was sharing content with "select AI companies." In February,

Reuters reported Reddit struck a deal with Google to make its

content available for training the latter's AI models.

Ahead of its initial public offering in March, Reddit

disclosed that its data-licensing business is the subject of a

U.S. Federal Trade Commission inquiry and acknowledged it could

fall foul of evolving privacy and intellectual-property

regulations.

The FTC, which warned businesses in February against

retroactively changing terms of service for AI usage, declined

to comment on the Reddit inquiry or say whether it was looking

into other training data deals.