Chatbot startup Character.AI files for bankruptcy, and Disney is first in line for key assets

Character.AI, a chatbot startup co-founded by former Google researchers, has filed for Chapter 11 bankruptcy protection. In a move to pursue a court-supervised sale of its assets, the California-based company has put its AI platform up for sale. Disney Worldwide Services, an affiliate of the Walt Disney Company, has emerged as the first potential buyer, offering $20 million for a non-exclusive, perpetual license to certain Intellectual Property and claims.

Other interested parties can still attempt to outbid Disney's offer during the bankruptcy process. Currently, Disney is providing transition services as part of the agreement, employing former Character.AI employees. Paid subscriptions for Character.AI remain active, but the startup has warned it may wind down the service if the sale does not yield sufficient funds to keep the platform operational.

Character.AI has faced numerous legal challenges, specifically concerning child safety, with several lawsuits alleging its chatbots contributed to teenagers' mental health crises and even contributed to suicide attempts. Despite these issues, Character.AI's platform will continue to operate during the sale process, which is expected to conclude by late November or early December.