---
title: "Disney's $20 million Character.ai bid faces 40 state attorneys general over children's chat histories"
description: "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."
publisher: "The Inference"
section: "Policy"
published: 2026-10-15T23:14:40.827Z
modified: 2026-10-15T23:14:40.827Z
canonical: https://theinference.org/article/disney-s-20-million-character-ai-bid-faces-40-state-attorneys-general-over-children-s-chat-histories
language: en
keywords: "Bankruptcy, Disney, AI Safety, Regulation, Mergers And Acquisitions"
---

# 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.

## 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](https://uk.marketscreener.com/news/character-ai-files-for-bankruptcy-agrees-to-sell-some-assets-to-disney-for-20-million-ce785dddda8cf62c). Disney Worldwide Services, a [Walt Disney Company](https://theinference.org/markets/companies/walt-disney) 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](https://www.thestreet.com/technology/disney-embraces-a-i-with-proposed-character-ai-bankruptcy-sale). [1][2][8]

Two days later, [40 state attorneys general asked US Bankruptcy Judge Brendan Shannon to fence off children's chat histories](https://www.riverbender.com/news/details/attorney-general-raoul-seeks-consumer-protections-in-characterai-bankruptcy-97554.cfm) 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. [1][5][7]

## Revenue doubled while losses ran to $9 million a month

[Chief Executive Colin Adams's court declaration](https://www.texarkanagazette.com/news/2026/oct/15/disney-strikes-20-million-deal-for-characterais/) 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. [1][3]

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]

*Chart: **Two years took Character.ai from a $2.7 billion deal to a $20 million bid** Bar chart comparing Google's 2024 deal, Character.ai's 2023 private valuation, and Disney's 2026 bid, in millions of dollars.*

*Headline dollar values attached to Character.ai, in millions of US dollars: Google's 2024 licensing and talent deal, its 2023 private valuation, and Disney's 2026 bid for an IP license and certain claims. Sources: TheStreet; Reuters; Texarkana Gazette (TNS). [1][2][3]*

## Forty attorneys general want conditions written into the sale

[The October 14 notice](https://www.msn.com/en-us/news/other/us-states-seek-childrens-data-protections-in-characterai-bankruptcy/ar-AA2efcGs) argues that weak age checks from 2022 to 2025 [likely labeled children's conversations as adult data](https://thedeepdive.ca/character-ai-may-have-misclassified-childrens-chats-as-adult-data-before-bankruptcy-sale/), 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. [5][6]

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](https://www.msn.com/en-us/money/technology/from-google-deal-to-bankruptcy-character-ai-files-for-chapter-11-puts-disney-in-driver-s-seat-with-20-million-deal-for-key-assets/ar-AA2e7YCc); Pennsylvania sued in May 2026 over a bot that presented itself as a licensed psychiatrist. [2][5][10]

## 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](https://techcrunch.com/2026/09/18/disneys-first-cto-led-an-ai-startup-it-once-accused-of-copying-its-characters/), along with most of the engineering staff, one year after sending the startup a cease-and-desist over chatbots playing Elsa and Darth Vader. [2][4][8][9]

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. [2][5]

## Takeaway

Judge Brendan Shannon could write children's data protections into any sale order, and the auction closes by early December, so Disney's cheap character stack is not yet its own.

## Sources

1. [TheStreet, "Disney seeks to buy Character AI assets in Chapter 11 bankruptcy," 14 October 2026](https://www.thestreet.com/technology/disney-embraces-a-i-with-proposed-character-ai-bankruptcy-sale)
2. [Reuters via MarketScreener UK, "Character.AI files for bankruptcy, agrees to sell some assets to Disney for $20 million," 13 October 2026](https://uk.marketscreener.com/news/character-ai-files-for-bankruptcy-agrees-to-sell-some-assets-to-disney-for-20-million-ce785dddda8cf62c)
3. [Texarkana Gazette (TNS), "Disney strikes $20-million deal for Character.ai's assets as AI startup files for bankruptcy," 15 October 2026](https://www.texarkanagazette.com/news/2026/oct/15/disney-strikes-20-million-deal-for-characterais/)
4. [Laughing Place, "Disney Makes Bid for AI Assets in Bankruptcy Auction," October 2026](https://www.laughingplace.com/disney-business/disney-character-ai-bankruptcy-auction/)
5. [Reuters via MSN, "US states seek children's data protections in Character.AI bankruptcy," 14 October 2026](https://www.msn.com/en-us/news/other/us-states-seek-childrens-data-protections-in-characterai-bankruptcy/ar-AA2efcGs)
6. [The Deep Dive, "Character.AI May Have Misclassified Children's Chats as Adult Data Before Bankruptcy Sale," 14 October 2026](https://thedeepdive.ca/character-ai-may-have-misclassified-childrens-chats-as-adult-data-before-bankruptcy-sale/)
7. [Office of the Illinois Attorney General via RiverBender.com, "Attorney General Raoul Seeks Consumer Protections In Character.AI Bankruptcy," 15 October 2026](https://www.riverbender.com/news/details/attorney-general-raoul-seeks-consumer-protections-in-characterai-bankruptcy-97554.cfm)
8. [Unite.AI, "Character.AI Files for Chapter 11 with Disney Stalking Horse Deal," 13 October 2026](https://www.unite.ai/character-ai-files-for-chapter-11-with-disney-stalking-horse-deal/)
9. [TechCrunch, "Disney's first CTO led an AI startup it once accused of copying its characters," 18 September 2026](https://techcrunch.com/2026/09/18/disneys-first-cto-led-an-ai-startup-it-once-accused-of-copying-its-characters/)
10. [Benzinga via MSN, "From Google deal to bankruptcy: Character.AI files for Chapter 11, puts Disney in driver's seat with $20 million deal for key assets," 13 October 2026](https://www.msn.com/en-us/money/technology/from-google-deal-to-bankruptcy-character-ai-files-for-chapter-11-puts-disney-in-driver-s-seat-with-20-million-deal-for-key-assets/ar-AA2e7YCc)


---

Disney's $20 million Character.ai bid faces 40 state attorneys general over children's chat histories — The Inference. Canonical: https://theinference.org/article/disney-s-20-million-character-ai-bid-faces-40-state-attorneys-general-over-children-s-chat-histories