Disney Offers $20 Million for Character.AI Chatbot Technology

Disney May Acquire Technology From One of the First Chatbot Makers Linked to Child Suicides.

Disney may acquire technology from one of the first creators of child suicide chatbots.

In a bankruptcy proceeding that began yesterday, Disney has offered to buy some of the technology that powers the controversial chatbot.

The chatbot maker said in a press release that did not elaborate on the assets Disney wants that Disney is willing to pay $20 million for a "perpetual non-exclusive license" to certain intellectual property from Character Technologies.

This move may come as a surprise. In September 2025, Disney joined others in publicly criticizing it for stealing content and harming children. Specifically, Disney sent a cease-and-desist letter accusing Character Technologies of using Disney characters "in a way that could harm its brand in the long term."

"The offending chatbots, in some cases, are known to be sexually exploitative and harmful and dangerous to children, offend Disney's customers and seriously damage Disney's reputation and goodwill," Disney wrote at the time.

The scandal ended with Character Technologies purging Disney-owned characters from its platform, but Disney has since hired former chief Karandeep Anand as its first CTO, Deadline reported.

Disney did not respond to Ars' request for comment on whether the company plans to use the technology in children's products.

It is possible that Disney will go ahead and not acquire the intellectual property. But since Disney's potentially lucrative partnership with OpenAI fell apart after Sora's sudden shutdown, the entertainment giant has been looking for more ways to "get into the AI ​​game and capitalize on the boom." (Meanwhile, OpenAI apparently plans to revive Sora without Disney.) So, Disney may be moving early in hopes of getting chatbot technology that resonates with its fans. It may even take over the platform in a transition initially managed by employees, the press release said.

Character Technologies' bankruptcy filing states that it has been in business for four years and has a large and active user base. Last year, a company blog reported that it had attracted more than 20 million monthly active users across all services.

For fans, a Disney takeover may sound appealing, perhaps as it finally becomes clear that the platform will survive its long legal woes, which include the settlement of a highly publicized lawsuit alleging chatbots encouraged a 14-year-old boy, Sewell Setzer III, to commit suicide. In addition, two states are currently suing Character Technologies, alleging other damages to users. Kentucky claims the chatbots encourage self-harm, while Pennsylvania claims the chatbots illegally impersonated licensed doctors.

In a blog post discussing the bankruptcy sale process, it assured users that the platform would remain online and available. Current subscriptions will continue to be charged unless services are changed to accommodate existing contracts, the blog said.

If all goes according to plan, the sale will close by "late November or maybe early December 2026," he said. And although the press release noted that the platform would have to be shut down if no buyer wanted to take on the potential responsibilities of managing it, it promised users that "we are focused on finding the best path forward for our platform and our community."

Beyond the technology sought by Disney, Character Technologies declined to comment on whether sensitive information might be sold through the bankruptcy process. Beyond the $20 million offered by Disney, Character Technologies "lists estimated assets and liabilities between $50 million and $100 million," according to NBC News.

Its press release noted that the decision to file for bankruptcy was made to maximize shareholder value, while the blog only referred to its privacy policy assuring users that no sensitive data would be shared outside of the platform. This policy explains that information shared with may be transferred during the sale of company assets, including identifying information, voice data, and chat logs. The only protection the Privacy Policy offers regarding sensitive chats reminds users that "Sensitive Personal Information is not required or necessary to use the Services—please do not include any Sensitive Personal Information in your interactions with us or the Services." This seems to ignore studies that have shown for years that people are often willing and eager to disclose sensitive or personal information to chatbots because there is no fear of judgment.

If it shuts down and Character Technologies is liquidated, it seems the AI company may be tempted to sell internal data such as employee emails and chat sessions. As the controversial sale of Spirit Airlines' internal data to Google recently demonstrated, as AI companies everywhere look for new data sources, bankruptcy proceedings seem to be an emerging target for obtaining much non-public data.

For now, Character Technologies is tight-lipped about which assets might be sold, with a spokesperson only repeating previous statements from the company's press release and court filings to Ars.

We will soon find out if the platform will survive bankruptcy in its current form, as the sale process has begun and will likely be completed within the next two to three months.

Any interested potential buyer has probably noticed that the Character Technologies blog mentioned that transferring the service to a new buyer could affect the safety of the platform. And that small acknowledgment may be enough to make the acquisition of the platform less desirable to more cautious buyers like Disney who may want the technology but want to distance themselves from the brand. In the bankruptcy filing, Character Technologies acknowledged that despite the platform's popularity, lawsuits have crippled its business.

"However, the growing and evolving field of artificial intelligence entertainment has proven to be costly to develop and grow," the filing states. "These high costs, along with potential liabilities related to litigation and regulatory obligations, have contributed to the debtor's inability to generate sufficient cash flows to support its business in its current form."

Ashley is a senior policy reporter for Ars Technica, dedicated to tracking the social impacts of emerging policies and new technologies. He is a Chicago-based journalist with 20 years of experience.