Three years ago, Character.AI was one of the most talked-about apps in AI. Millions of people spent their evenings chatting with AI characters, many of them dreamed up by other users. On October 12, the company filed for Chapter 11 bankruptcy in Delaware.
It didn't walk into court empty-handed. Disney has lined up as the opening bidder, offering $20 million for a non-exclusive licence to some of Character.AI's intellectual property. Other buyers now get a chance to top that offer in a court-supervised sale expected to wrap up by late November or early December. If nobody does, the app shuts down.
How a billion-dollar startup got here
Character.AI was founded by two former Google researchers, Noam Shazeer and Daniel De Freitas, and was valued at more than $1 billion in 2023. A year later, Google paid $2.7 billion in a licensing deal that brought both founders back to Google, leaving the app to carry on without them.
Then came the hardest chapter. Families filed lawsuits over harm to teenagers who used the app, and the company settled several of them earlier this year. Today it lists both its assets and its liabilities in the $50 million to $100 million range.
The question for users
When an AI company changes hands, what happens to everything people told it? Millions of private conversations sit on Character.AI's servers, and it isn't yet clear how a buyer could use them. If you've used the app, it's worth checking your account and deciding what you want to keep.
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