Disney Offers $20M For Character.AI Assets As Startup Files For Chapter 11 Bankruptcy Protection

After hiring Character.AI‘s former CEO as its chief technology officer, Disney is looking to acquire assets from the 5-year-old startup as it files for Chapter 11 bankruptcy protection.

The company, which allows users to create and interact with AI-generated avatars, said it made the filing in U.S. Bankruptcy Court for the District of Delaware. It said it hopes the process will allow it to “facilitate a value-maximizing sale of all or substantially all” of its assets. The Character.AI platform will continue to operate during the bankruptcy.

The Disney agreement, reached prior to the filing, would give the media giant a non-exclusive perpetual license of select intellectual property and company claims from Character.AI. Disney would pay $20 million and provide resources during a transition period as the company explores a sale. Disney is classified under bankruptcy law as the “stalking-horse bidder” for the IP, but its bid is subject to “higher or better offers,” CharacterAI noted in a statement.

Disney appointed former Character.AI chief Karandeep Anand as its first CTO last month. He reports directly to CEO Josh D’Amaro, who succeeded Bob Iger in the top job earlier this year with a stated goal of improving the company’s technology and AI efforts. D’Amaro became familiar with interactive technology prior to becoming CEO during his tenure as the head of Disney’s experiences division, which includes its theme parks.

While its lawyers have not hesitated to send cease-and-desist letters to AI companies, Disney is among the big media companies looking for ways to get in the AI game and profit from its boom. During the latter part of Iger’s tenure, Disney made a splashy deal with OpenAI soon after the company launched its controversial Sora 2 video model. Under the deal, Disney was to have licensed a number of its characters for use on Sora and also invest $1 billion in OpenAI, which is looking to go public soon at a valuation possibly exceeding $1 trillion. The transaction was scuttled two months later after OpenAI shut down Sora, which had drawn a host of legal complaints alleging copyright violation.

Character.AI said it is aiming to conclude the sale process by late November or early December.

“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,” CEO Colin Adams said 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.”