Character.AI Files for Bankruptcy: Disney's $20 Million Bid and What Google's Deal Left Behind

Character Technologies, which runs the Character.AI chatbot app, filed for Chapter 11 in Delaware on October 12 to run a court-supervised sale, per SAN. It listed assets and liabilities of $50 million to $100 million each. Disney is the opening bidder at $20 million, for a nonexclusive, perpetual license to certain intellectual property and legal claims. Other bidders can top it, and the sale should close by early December.

The filing describes a company that could not cover its compute. It spent $56.1 million on compute and $19.7 million on salaries from January through August, while monthly revenue reached $5.3 million in August, per 404 Media's reading of the documents via Futurism. It was losing $8 million to $9 million a month. The startup was once valued at about $1 billion. At a $20 million opening bid, this looks like a liquidation, with no exit for anyone holding stock.

Google's 2024 deal set this up. Google reportedly paid $2.7 billion to license Character.AI's technology and rehire its founders, Noam Shazeer and Daniel De Freitas, per The Rundown. The company kept the app, the users, and the lawsuits. Kentucky and Pennsylvania have sued, and it earlier settled five suits from families who said its chatbots harmed their children. Anthropic used the same structure with Opaque this week, which we covered on October 14.

Users are the open question. Pennsylvania says the app has more than 20 million monthly users. Its privacy policy allows "certain information" to transfer in an asset sale. As of Tuesday nobody had asked the court for a consumer privacy ombudsman, per SAN. The company says the platform will wind down if no bid keeps it running. Disney's license can close even if the app shuts.