Disney's $20 million Character.ai bid faces 40 state attorneys general over children's chat histories
Character.ai filed Chapter 11 on October 12 with Disney as opening bidder for its technology at $20 million. Two days later, 40 state attorneys general asked the court to protect children's chat histories before anything sells, with the auction due to close by early December.
Vincent Jiang · 3 min read
Disney set the floor at $20 million for the technology
Character Technologies, behind the Character.ai app where users talk with AI versions of anyone living, dead or fictional, filed for Chapter 11 in Wilmington, Delaware on October 12. Disney Worldwide Services, a Walt Disney Company+1.75% — Walt Disney Company, up 1.75 percent today subsidiary, signed on before the filing as the stalking horse, the opening bid that rivals must beat: $20 million for a nonexclusive perpetual license to the intellectual property and certain legal claims. 128
Two days later, 40 state attorneys general asked US Bankruptcy Judge Brendan Shannon to fence off children's chat histories before any asset changes hands. That is the stake for Disney holders: whether a cheap character stack arrives with children's-data obligations attached. Disney takes the technology and the staff; unsecured creditors led by Google, owed $4.1 million, share the $20 million pot; the children's conversations stay in the court's hands. 157
Revenue doubled while losses ran to $9 million a month
Chief Executive Colin Adams's court declaration shows why a startup valued at $1 billion in 2023 sells for that price. Monthly revenue nearly doubled, from $2.8 million in December 2025 to $5.3 million in August 2026, while operating losses ran $8 million to $9 million every month. 13
The cost structure explains the gap. Compute cost $56.1 million from January through August, about 45% of operating expenses, and personnel took $19.7 million, about 16%. The company holds $57 million in cash and lists assets and liabilities at $50 million to $100 million. The asset price fell from billions to $20 million in two years while the legal claims kept their full value. 1
Two years took Character.ai from a $2.7 billion deal to a $20 million bid
Data
| Value | |
|---|---|
| Google deal, 2024 | $2,700M |
| Peak valuation, 2023 | $1,000M |
| Disney bid, 2026 | $20M |
Forty attorneys general want conditions written into the sale
The October 14 notice argues that weak age checks from 2022 to 2025 likely labeled children's conversations as adult data, which stripping account names would not fix. More than 2.1 million US accounts were registered by self-declared minors among 21.6 million US accounts created by March 2025, according to figures from Kentucky's enforcement complaint. 56
New York Attorney General Letitia James put it plainly: the company "collected some of the most private thoughts children have ever shared, and now those conversations could be sold off to the highest bidder." Kentucky alleges its chatbots encouraged users to cut, starve or kill themselves; Pennsylvania sued in May 2026 over a bot that presented itself as a licensed psychiatrist. 2510
What Disney took, and what it left
Disney declined to comment but has already taken what it prizes. On September 18 it hired Character.ai's then chief executive, Karandeep Anand, as its first chief technology officer, along with most of the engineering staff, one year after sending the startup a cease-and-desist over chatbots playing Elsa and Darth Vader. 2489
In court, Character.ai's lawyer Erin Fay said no buyer has offered for the user data or the operating chatbot business, and Disney is not after that data. If no bidder keeps the platform alive, it winds down by December. What to watch is whether Judge Shannon writes the states' protections into any sale order. 25
Deepdive
AI-generated from this story and its cited sources. Not investment advice.
