Character.AI Chatbot Platform Files for Bankruptcy

    Character.AI has filed for bankruptcy protection under Chapter 11 in the US. The company is preparing to sell some of its assets to Disney. Chapter 11 allows it to continue operating during the sale process. Character.AI, one of the first well-known startups of the artificial intelligence boom, develops online bots for conversations and role-playing. In recent years, investigations and lawsuits concerning chatbot safety have increased pressure on the company.    Character.AI’s bankruptcy filings list its estimated liabilities at $50–$100 million (approximately AZN 85–170 million). Disney is the lead bidder in the sale process. The company is prepared to pay $20 million (approximately AZN 34 million) for certain undisclosed assets. Bids from other buyers will also start at this amount. Disney will obtain the right to use certain intellectual property, but this right will not be exclusive to the company.    Disney recently appointed former Character.AI CEO Karandeep Anand as chief technology officer. Anand led the startup for a little over 1 year. During that period, the company shifted its focus to short-form microseries. The sale plan also includes support during the transition period. Former Character.AI employees hired by Disney will participate in this work. Part of the technical team is also expected to join the entertainment company.    The parties previously had a dispute over intellectual property. Disney said the creation of unauthorized chatbots based on its characters harmed its brand and infringed its copyrights. The company therefore sent Character.AI formal letters demanding that it cease the activity.    The deal resembles an acquisition model focused more on hiring specialists than acquiring assets. Character.AI faced a similar situation in 2024. At the time, Google spent more than $2 billion (more than AZN 3.4 billion). As a result, a large part of the team, including co-founders Noam Shazeer and Daniel De Freitas, moved to Google.    Character.AI expects to complete the sale process in late November or early December. Until then, the platform and paid subscriptions will continue to operate. However, the company said it would gradually shut down the platform if no suitable bid emerges. Other buyers may also offer more than Disney during the sale process.