• Prominent Reddit moderators are locking down their subreddits in protest of the company's recent decision to raise the price of access to its data.
• The controversy highlights the increasingly fraught relationship between Reddit's leadership team, which has been marching towards an IPO, and its many outside supporters.
• Reddit has said the price increase was necessary because so much of its data is being used to train artificial intelligence models being developed by tech giants like Microsoft and Google.

At midnight on Tuesday, the moderators of the Reddit community r/Gaming decided to go dark.

Dac Croach, who goes by username Dacvak, and the subreddit's other leaders hit the private button, initiating a 48-hour shutdown for the group's more than 37 million members, along with anyone else who tried to access the community.

They were joining a large-scale protest against Reddit, which was about to implement a business change that would dramatically increase the price for third-party developers to use the company's application programming interface, or API. In the preceding days, the r/Gaming moderators had run a poll indicating that users would support a shutdown. They discussed the results on Slack, and then went offline.

The widespread protests of one of the internet's most-trafficked sites started early this week and quickly expanded to more than 8,000 subreddits, including the wildly popular r/Funny, with over 40 million members, along with r/Music and r/Science, each boasting over 30 million users.

Croach and his peers weren't only standing in solidarity with Reddit's outside developers. They were also worried that the tools they use on a daily basis to run their groups may no longer be available if the creators of those services decide they can't afford Reddit's new pricing structure. Reddit's third-party apps are popular with moderators, who use them to organize their subreddits, block spam accounts, flag unsafe posts, find patterns of harassment and abuse and communicate with their members on the go.

Other apps widely used by Reddit members help with browsing the site and with assisting disabled users, who can find services for improved accessibility.

Croach told CNBC that, unlike Facebook, Twitter and Alphabet's YouTube, Reddit counts on independent developers, rather than employees, to provide essential services that make the platform operable for moderators and users.

"Reddit not only has all of its content generated by users, but all of its moderation is done by volunteers," Croach said. "We're talking hundreds of thousands of volunteers putting in hours a day to keep the site safe, entertaining and enjoyable for community members. And it's tough to see that those people, when their voices are loud like this, are being ostensibly ignored." 

That sentiment is shared across much of the Reddit universe, based on CNBC's interviews with nearly a dozen moderators, some of whom oversee the biggest communities on the site.

The controversy highlights the increasingly fraught relationship between Reddit's leadership team, which has been marching towards an IPO, and its many outside supporters, who have helped the company maintain over 100,000 active communities that attract over 500 million global visitors.

If unresolved, the impact of a prolonged blackout could have ripple effects across the internet.

Reddit is the sixth-most-visited website in the U.S., according to data from analytics firm Semrush – behind Google, Google-owned YouTube, and Facebook, but ahead of Amazon, Twitter and Yahoo. Its more than 100,000 active subreddits, on topics from gardening to comic books, provide mounds of content catalogued by Google and other search engines.

Reddit previously said the coming price increase for access to its API was necessary because so much of its data is being used to train artificial intelligence models being developed by tech giants like Microsoft and Google.

In addition to giving it compensation for using its trove of data, Reddit said the updated pricing model is "to ensure developers have the tools and information they need to continue to use Reddit safely, protect our users' privacy and security, and adhere to local regulations." The company added in a later post that it "needs to be a self-sustaining business and to do that, we can no longer subsidize commercial entities that require large-scale data use from our API."

Christian Selig, who runs a popular third-party browsing app called Apollo, found out about the pricing change on May 31, when a Reddit representative called him.

On the call, Selig figured out that he would owe Reddit about $20 million a year. Selig wrote in a post that Reddit is asking developers to pay $12,000 for every 50 million requests. He had 30 days to prepare for the changes or shut down altogether. He determined that he couldn't afford to keep Apollo alive.

Selig announced he would shut down his app on June 30, the day before the changes were set to take effect. He emailed a Reddit representative and CEO Steve Huffman, outlining "small concessions that could be made that I think could make Apollo survive this, specifically around the timelines," Selig told CNBC. 

A Reddit spokesperson pointed CNBC to a recent blog post outlining the company's policies around its API and referenced Huffman's comments during a recent Reddit Ask Me Anything post.

"We respect when you and your communities take action to highlight the things you need, including, at times, going private," Huffman said. "We are all responsible for ensuring Reddit provides an open accessible place for people to find community and belonging."

With the Reddit moderator community in an uproar, Huffman reportedly sent a memo to employees on Monday, telling them that, "like all blowups on Reddit, this one will pass." He predicted that most subreddits would be back online by Wednesday.

The blackout continued through the week. Huffman told NBC News on Thursday that he wants the protests to end soon, but downplayed the significance of their impact on the company, saying that roughly 80% of Reddit's top 5,000 communities are back open.

Huffman also said he's looking to change Reddit's moderator policy at an unspecified time so that users would be able to more easily vote out moderators if they disagreed with their decisions. On Friday, the company posted a message in r/ModCodeofConduct, a community of Reddit moderators, suggesting that if subreddits did not agree to lift the blackout, the company would work to find new moderators.

"We are also aware that some members of your mid team have expressed that they want to close your community indefinitely," the post said, adding, "If there are mods here who are willing to work towards reopening this community, we are willing to work with you to process a Top Mod Removal request or reorder the mod team to achieve this goal if mods higher up the list are hindering reopening."

While the initial protest was planned for just 48 hours, on Tuesday thousands of subreddits decided to extend their blackouts indefinitely. 

"No one enjoys this," Croach said. "No one wants to black out. No one revels in this. No one is happy about this. We're doing this because… we love everything about Reddit, and we genuinely feel like not only are these decisions potentially detrimental for the future of the site, but they're also just absolutely unfair to a lot of the people – including the third party developers – who volunteered their time for the site over the years… More than anything, we want a positive, peaceful outcome as quickly as possible, so things can just return to normal." 

The ripple effects

Among the major U.S. internet companies, Reddit is unusual in that it's still private. The 18-year-old company first disclosed plans for an IPO through a confidential filing in late 2021. That was right when the extended bull market was coming to an end and just before Wall Street lost all interest in public listings from cash-burning tech companies. It's not clear at the moment when an IPO could happen.

Huffman has "got a lot of decisions to make as he's trying to move the company public," said David DeWald, a community manager for the telecommunications company Ciena and a moderator of the r/Arcade1up subreddit. He said Reddit management likely made the decision to raise the price of its API out of financial necessity.

As a private company, Reddit doesn't have to disclose its financials or provide revenue and profit projections. Reddit is an ad-supported business and, in the limited information it's provided to the public, the company said in mid-2021 that quarterly ad revenue hit $100 million for the first time. On Thursday, Huffman told NBC News that the still-unprofitable company's annual revenue is less than $1 billion.

For many news publishers, corporate websites and image-sharing services, Reddit is a major driver of traffic because its users share so much content with one another.

Shane McCarthy, chief marketing officer of enterprise software vendor Sandboxx, said many CMOs are surprised with how much referral traffic their website can get when one of their products is discussed in a particular Reddit community. Those sites could see a sudden decrease in traffic because of the blackout, McCarthy said, ultimately hurting their search rankings and driving up marketing costs. There are rumblings that it's already happening.

The bigger problem for Reddit, according to McCarthy, is that the latest developments may deter new users from signing up, making it a less attractive place for advertisers to run campaigns. And if users delete content or archives in an act of protest, as one Reddit moderator told CNBC some are considering, "there's nothing there anymore," he said.

Croach and other subreddit moderators said tensions have long existed between Reddit management and the company's vast network of volunteer contributors. The API charges represent the final straw, as they know the new pricing model doesn't work for some app developers who built tools that they use every day.

"You have a lot of people, both professionals and general community members, who are running the numbers on this," Croach said.  "A lot of people are kind of getting the same result, which is that the API pricing structure seems to be intentionally unsustainable for these smaller third-party developers."

A Reddit user who goes by Meepster23 echoed Croach's views. Meepster23 is a senior moderator of the r/Videos subreddit, which has more than 20 million members. He said that despite Reddit's claim that the changes are about recouping costs, "their pricing seems to be based on revenue, not on cost at all." 

Following the protests in real time

With their communities shut down, many moderators have turned to a subreddit and Discord group called ModCoord to express their frustrations and figure out next steps. ModCoord is made up of moderators of leading subreddits and has served as a way to help organize the community and disseminate information.

Although ModCoord has been used for past Reddit protests, it's "not something that the moderators pull out lightly," said a Reddit user named Omar, who helps run the ModCoord subreddit and Discord community, in an interview. Like several moderators who spoke to CNBC, the person asked not to be credited with their full name for fear of online harassment. The community, "isn't under some delusion that we want the API to be free," Omar said, adding that the priority is to make access affordable.

Reddark, a website that shows in real time which subreddits have gone private or read only, grew out of a community effort to chart the protests' impact, and now attracts thousands of people visiting the site to watch the actions unfold, the creators told CNBC.

Reddark's director, known online as Tanza, called Reddit's API changes "ridiculous," and said many disabled users rely on third-party apps for enhanced accessibility features.

A moderator of r/Unexpected, a subreddit with more than 10 million members, said its community was "dependent on third-party apps," adding that moderating communities from mobile devices could be nearly impossible after the changes.

Jacqueline Sheeran, known as "MCHammerCurls," is the head moderator of r/Fitness, which has more than 10 million members. She said volunteer moderators are reliant on third-party apps for all sorts of safety features so they can flag key words, phrases and expressions.

"There are legitimate health concerns, eating disorders, injuries," she said. "[It's about] trying to make sure that people are staying safe and healthy in their activities while also not being inundated by bots or spam accounts."

Although Reddit has promised that its API pricing change wouldn't affect third-party non-commercial accessibility apps or certain moderation tools, many Reddit moderators said that they are hesitant to trust the company. The moderators claim that Reddit has made promises in the past, such as providing them with high-quality internal moderation tools. However, they say Reddit's home-built software wasn't as good as outside services.

Leading up to the protests, Dr. Sarah Gilbert, a moderator for the r/AskHistorian subreddit, said she was "kind of hopeful" that Reddit leadership would distinguish the company as one that takes into account the concerns of volunteers in making business decisions.

"That would be such a powerful model for Reddit to take on and show," said Gilbert, who studies online communities as part of her work as a postdoctoral associate at Cornell University and research manager at the school's Citizens and Technology Lab. "It would have been a good thing for the social internet that we have for people to feel listened to and comfortable, but I don't know if the turning point is going to come too late or what's going to happen."

Gilbert added that Huffman's recent comments about instituting possible policy changes that would let Reddit users more easily remove moderators to be "highly concerning for a number of reasons."

She said that while on the surface, Huffman's proposed policy changes "seem like it would work well," it's often that "voting alone can have some disastrous effects."

"So, there's a real risk that mods are going to get voted out, simply for doing the work of moderation," she said. "In the short term, this means mods may be less likely to do important moderation work that protects their communities but may be unpopular, which will have a downstream effect of more disinformation, more hate, more spam, more harassment and more abuse on Reddit."

Reddit user RamsesThePigeon, who moderates multiple subreddits, including r/funny and r/nottheonion, said the company appears to be "standing firm" in its belief that the price hike was the right call.

But the conflict isn't helpful for either side, and everyone's time would be better spent "working toward the solution rather than against each other," he said.

"I feel like a lot of people don't take the time to consider the other side, whether that's Reddit not considering its moderators and contributors, or the moderators and contributors not considering Reddit," RamsesThePigeon said.

Regardless of the outcome, several moderators said that there's been a loss of trust that will be hard to repair.

"I'm not certain that there would have been a completely perfect way to handle any of this," RamsesThePigeon said. "No matter what, there is going to be animosity on both sides, and that's just humanity for you."

WATCH: The Reddit Revolt