By Roman Aglaganov
Character.AI, which let people create AI characters and chat with them, filed for Chapter 11 bankruptcy on 13 October. In its court filing, the company put its assets and its liabilities each between $50 million and $100 million.
What happens now
A sale: the company is selling itself through a court-supervised process expected to close in late November or early December. Chief executive Colin Adams said the board chose this route as “the best opportunity to maximize value for all stakeholders”.
Disney: it has agreed to buy some assets for $20 million, plus a non-exclusive, perpetual licence to Character.AI’s technology. Former Character.AI staff, who joined Disney last month with former chief executive Karandeep Singh Anand, will help with the transition.
No buyer yet: Adams said there is no bid for the rest of the company. If none arrives, “the platform will be wound down”. Until then, it keeps running.
How it got here
Founded in late 2021 by the former Google engineers Noam Shazeer and Daniel De Freitas, Character.AI became a unicorn within a year. In 2024, Google paid $2.7 billion to license its models, and both founders went back to Google. The app kept growing, to 20 million monthly users by October 2024.
Then came the lawsuits. A Florida mother sued after her 14-year-old son, who had become obsessed with one of its chatbots, died by suicide, and Texas opened an investigation into child safety on the platform. The company settled some cases, added safety features and banned minors. New formats, from AI video to social feeds and microdramas, did not fix the finances.
Why it matters
Character.AI was one of the most-used AI apps by time spent. Its fall shows a hard truth of consumer AI: engagement is expensive. Every extra hour of chatting costs compute, which raises the pressure to make money from users who signed up for something free. Other companion apps will be watching what the sale is worth.
