Disney hires Character.AI's team after bankruptcy

Corrected 19 Oct: Disney pays $20M for a license to Character.AI's code and 9 patents, not the platform. About $180M is Disney's 3-year cost estimate for the staff it hires. Character.AI filed Chapter 11 on 12 Oct in Delaware. All corrections

Character.AI, a popular chatbot app, has filed for bankruptcy. Before that, Disney hired most of its staff and agreed to buy some of its assets and license some of its technology. Court papers put the staff pay at about $180 million over three years.

What happened

Character.AI filed for Chapter 11 bankruptcy about five years after it started, TechCrunch reports. Chapter 11 is a court process where a company can reorganize or sell its assets. The company says its board picked a court-run sale after looking at other options.

Disney has agreed to buy some of the company's assets for $20 million, per TechCrunch. It also gets a non-exclusive, forever license to the technology. Non-exclusive means others could get one too. PPC Land, which read the court filings, says Disney is not buying the app itself. The license covers code for training, safety and running the systems, plus nine patents. It leaves out the app, brand, domains, user data, chats and finished models.

The filings also cover the people. PPC Land says Disney offered about 65 employees roughly $60 million a year in pay, plus a $30 million retention pool. It puts the three-year total at about $180 million. It says 66 employees accepted jobs at Disney.

Key facts

• Sale price: $20 million from Disney for some assets, plus the license, per TechCrunch.
• Staff: about 86 full-time employees at the end of September; 66 accepted Disney jobs, per PPC Land.
• Pay: Disney's estimate of the total over three years is about $180 million, per PPC Land. The source does not say whether that total includes the retention pool.
• Court: the case was filed in the US Bankruptcy Court for the District of Delaware, per PPC Land.
• Rival bids: other buyers must offer at least $21.7 million. Bids are due November 20, with an auction on November 23.
• Users: about 12 million monthly active users when the company filed, per PPC Land.

Background

Character.AI started in late 2021 and became a "unicorn" (a startup with a very high value) by September 2022, per TechCrunch. In August 2024, Google paid $2.7 billion to license its models, and the two founders went back to Google.

The company then faced lawsuits, including one over a 14-year-old boy's death. It also faced a Texas investigation into child privacy and safety. TechCrunch says some lawsuits were settled and the company banned minors. TechCrunch also says it was hard to earn money from a consumer AI app, because costs rise as people use it more. PPC Land reports it was losing about $8.2 million a month in August.

What it means for you

If you use Character.AI, the app is expected to close. TechCrunch says that if no good bid appears, the platform will be wound down. PPC Land says the company expects to shut it down after the sale. Our take: save anything you care about.

Our take: this shows how big companies can pick up a struggling startup's best people and tools without buying the whole business. It is a quick way to get AI talent. It can also leave users with nothing.

What happens next

PPC Land lists the dates: bids are due November 20, an auction is set for November 23, and the sale hearing is November 24. TechCrunch says the sale should close in late November or early December. PPC Land says Disney can walk away if the court does not approve the bidding rules by November 2.

FAQ

Did Disney buy Character.AI?

Not the whole company. Per PPC Land, Disney would pay $20 million for some assets plus a license to certain technology and patents, and is not buying the platform.

How many people moved to Disney?

PPC Land says 66 accepted jobs at Disney. It says Disney estimated pay at about $180 million over three years.

Will Character.AI shut down?

TechCrunch says the platform will be wound down if no viable bid appears. PPC Land says the company expects a wind-down after the sale. No final date is given.

Sources

• TechCrunch
• ppc.land