Character.AI, one of the first startups in the generative AI boom, filed for bankruptcy and is selling some of its assets to Disney. The company, which creates various online bots for users to chat or role-play, has faced increasing scrutiny and lawsuits over the security of its chatbots, but has continued to release updates and products in recent months.
In a press release and blog post published on Monday, Character said it had filed for Chapter 11 bankruptcy protection in the US to facilitate the sale of the company and its assets. “Over the past year, we have taken significant steps to sustain and improve our business amid significant legal, regulatory and operational obstacles,” the company said.
In its bankruptcy filing, Character listed estimated liabilities between $50 million and $100 million. As part of the proposed sale, Disney would act as the lead bidder for Character.AI’s assets, establishing a basis for competitive bids. Disney would pay $20 million for certain undisclosed assets and provide transition support “using former employees of the Company it has hired.” You would also receive a non-exclusive license to unspecified intellectual property.
Disney’s involvement comes shortly after the entertainment giant hired former Character.AI CEO Karandeep Anand as chief technology officer, as part of its growing push into AI. Anand’s tenure as CEO of Character lasted just over a year and during that time he oversaw the company’s move into microdramas. Disney has previously complained that Character was damaging its brand and exploiting its intellectual property by allowing unauthorized chatbots of its characters, including sending cease and desist letters.
Along with Anand, Disney also said it expected “several members of Character.AI’s technical team” to join the company. The move resembles a kind of “acquisition” strategy that has become increasingly common in Silicon Valley as a means of hoovering up talent from startups, sometimes leaving the original company struggling to survive. Character.AI already survived it once: Google spent more than $2 billion to hire much of the company’s talent, including co-founders Noam Shazeer and Daniel De Freitas, in 2024.
Character said it expects the sales process 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 close” if a suitable offer does not arise. “As we navigate this process, maintaining a safe and engaging experience for our community remains a top priority,” he said.
