Character.AI Files for Bankruptcy
Character.AI, one of the first startups in the AI boom, has declared bankruptcy and is selling part of its assets to Disney. The company, which creates various online bots that users can chat or role-play with, has faced serious scrutiny and lawsuits over the safety of its chatbots, but has continued to publish […]
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The chatbot startup is looking to sell its assets to Disney after years of legal challenges and safety concerns.
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is a London-based reporter at The Verge covering all things AI and a Tarbell Senior Fellow. Previously, he wrote about health, science and technology for Forbes.
, one of the first startups in the artificial intelligence boom, has declared bankruptcy and is selling part of its assets to Disney. The company, which creates various online bots for users to chat or role-play with, has faced serious scrutiny and complaints about the safety of its chatbots, but has continued to release updates and products in recent months.
In a press release and blog post published Monday, Character announced that it has filed for Chapter 11 bankruptcy protection in the United States to facilitate the sale of the company and its assets. "Over the past year, we have taken meaningful steps to maintain and improve our business amid significant legal, regulatory and operational challenges," the company said.
In his bankruptcy filing, Caracter listed estimated debts of between $50 million and $100 million. As part of the proposed sale, Disney will act as the lead bidder for the assets and set the basis for competing bids. Disney will pay $20 million for some undisclosed assets and provide transition support "using former employees the company has hired." It also receives a non-exclusive license to unspecified intellectual property.
Disney's partnership comes shortly after the entertainment giant hired former CEO Karandeep Anand as chief technology officer as part of its growing push into artificial intelligence. Anand's tenure as CEO of Character lasted a little over a year, during which he oversaw the company's move into small dramas. Disney previously complained that Character was damaging its brand and misusing its intellectual property by allowing unauthorized chatbots from its characters, including sending cease-and-desist letters.
Along with Anand, Disney also said it expects "some of the technical team" to join the company. The move resembles the kind of "acquisition" strategy that has become increasingly common in Silicon Valley as a means of boosting startup talent, sometimes leaving the parent company struggling to survive. It's already survived it once — Google spent more than $2 billion to hire a lot of the company's talent, including co-founders Noam Shazeer and Daniel De Freitas, in 2024.
Character said it expects the sale to be completed by late November or early December and plans to continue operating its services, including paid subscriptions, in the meantime. However, the company warned that "the platform will be destroyed" if a suitable offer is not made. "As we navigate this process, a safe and engaging experience for our community remains a top priority."
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