Character.AI Files for Bankruptcy, Sells Assets to Disney

Character.AI, one of the first breakout startups of the generative AI boom, has filed for bankruptcy and plans to sell some of its assets to Disney. The platform, which lets users chat and roleplay with a wide range of bots, has faced growing regulatory scrutiny and lawsuits over the safety of its chatbots in recent years, yet it kept shipping updates and new products throughout.

In a press release and blog post published Monday, the company said it had filed for Chapter 11 protection in the US to facilitate the sale of the business and its assets. "Over the past year, we've taken meaningful steps to sustain and improve our business amid significant legal, regulatory, and operational headwinds," Character said.

Disney as lead bidder

In its filing, Character listed estimated liabilities between $50 million and $100 million. Under the proposed deal, Disney would act as the lead bidder, setting a baseline for competing offers. It would pay $20 million for certain undisclosed assets and provide transition support using former Character employees it has hired, while also receiving a nonexclusive license to unspecified intellectual property.

Disney's involvement comes shortly after the entertainment giant hired Character.AI's former CEO, Karandeep Anand, as its chief technology officer, part of a growing push into AI. Anand led Character for just over a year, overseeing the company's move into microdramas. Notably, Disney had previously accused Character of damaging its brand and exploiting its intellectual property by allowing unauthorized chatbots of its characters, even sending cease-and-desist letters.

History repeating

Along with Anand, Disney said it expects "a number of Character.AI's technical team" to join the company. The move resembles the "acquihire" strategy increasingly common in Silicon Valley — buying the talent rather than the product — which sometimes leaves the original company struggling to survive. Character.AI has been through this once already: in 2024, Google spent over $2 billion to hire away much of its team, including co-founders Noam Shazeer and Daniel De Freitas.

The company expects the sale to close by late November or early December and plans to keep its services, including paid subscriptions, running in the meantime. Still, Character warned that "the platform will be wound down" if no suitable bid emerges. "As we navigate this process, maintaining a safe and engaging experience for our community remains a top priority," it said.

Source: The Verge