Character.ai on 12 October filed a Chapter 11 bankruptcy petition in a Delaware court and began the process of selling its assets; if no buyer is found the platform could be shut down.
Expenses, revenue and users
In the first eight months of 2026 the company spent $56.1 million on computing power and a further $19.7 million on salaries. In August revenue was $5.3 million, of which $2.8 million came from subscriptions and $2.5 million from advertising, but monthly operating losses reached $8–9 million.
About 12 million people use the platform each month, spending on average two hours a day in conversations with chatbots. Analysts estimated that in August the company earned roughly 44 cents per active user, while computing costs were 58 cents.
Cost savings and operational measures
The company moved to cheaper open models, reduced headcount, launched advertising in 2025 and added in‑app purchases in 2026. Computing costs were nearly halved compared with $13.8 million per month at the end of 2024, but that proved insufficient to reach profitability.
“Over the past year Character.ai has taken substantial steps to sustain and improve the business amid significant legal, regulatory and operational pressure,” Adams said. The company sought financing, but of 28 potential partners only one submitted an offer, which proved unworkable.
Technology bids and personal data concerns
The assets have been put up for sale; Disney has offered $20 million for a licence to part of the technology, and a sale is expected to be completed by the end of November or the start of December. Earlier in 2024 Google paid $2.7 billion for a non‑exclusive licence to the technologies and brought the company’s founders back in.
A separate issue is the fate of personal data: state attorneys general in dozens of states are demanding guarantees that users’ chats will not be sold along with the assets; among users there are at least 2 million children. “Our most sensitive personal information is not an asset to be bought and sold, especially in a fire sale after bankruptcy,” said Mario Trujillo, an attorney at the Electronic Frontier Foundation.
Comparison with other failures and industry views
Character.ai is not being mentioned as the sector’s first failure: in 2025 Builder.ai went bankrupt after previously being valued at $1.5 billion. In Character.ai’s case the problem was an imbalance between revenues and costs, even though the company had a real product and a large audience.
Billionaire Ray Dalio called the artificial intelligence market “a classic bubble.” The International Monetary Fund (IMF) warned of the risks from a sharp pullback in AI investment: IMF Managing Director Kristalina Georgieva said the global economy is now “standing on one leg — the AI leg.” The startup’s liabilities are estimated at $50–100 million.
