Disney Circles Character.ai as Chatbot Company Files For Chapter 11 Bankruptcy

Character.ai, the AI-powered chatbot company, is filing for Chapter 11 bankruptcy protection, and it says that Disney is the stalking horse bidder for some of its assets.

Founded by former Google engineers, the tech company used AI to let users create and engage with chatbots. More recently it began using AI to create microdramas.

Disney Worldwide Services, a subsidiary of the entertainment giant, is committing $20 million to be the stalking horse bidder “for a non-exclusive perpetual license of certain Company intellectual property and certain Company claims.”

Disney hired Character.ai’s former CEO Karandeep Anand last month to become its CTO, and at the time the company said some employees fro the startup would be joining him. The tech company said in the bankruptcy filing that the former employees would help provide transition services, and that “these transition services will help the Company safely operate using its platform for a limited period of time and support its sale process.”

The bankruptcy auction is expected to be completed in late November or early December, and there can be no guarantee that Disney emerges as the winner for the assets it is bidding on, though as the stalking horse it has the right to match a deal, among other rights. The docket shows that its largest creditor is Google, which the company owed more than $4 million.

“Over the past year, Character.ai has taken meaningful steps to sustain and improve its business in the face of significant legal, regulatory, and operational headwinds,” said Colin Adams, CEO of Character.ai in a statement. “After a comprehensive review of the available alternatives, the board determined that this court-supervised sale process provides the Company with the best opportunity to maximize value for all stakeholders. As we navigate this process, maintaining a safe and engaging user experience for our Character.ai community remains a top priority.”

If Disney is successful in the bid, it would gain access to Character’s AI avatar tech, giving it a foothold in the space as it seeks to find new forms of engagement. Last year Disney inked a deal with OpenAI to let users create videos using its Sora software, before the AI company shut it down and the deal was unwound. The Character.ai move suggests that it still holds some desire to bring AI to its platforms.