AI companion app Character.ai files for Chapter 11 bankruptcy in Delaware

Character.ai, the startup behind one of the largest artificial intelligence companion apps, filed for Chapter 11 bankruptcy protection on Monday in the Delaware District bankruptcy court, according to a company release and court filings. In its four-year lifespan, the platform amassed a large user base where people can have one-on-one conversations and roleplay with artificial intelligence characters. The burgeoning and evolving field of artificial intelligence entertainment, however, has proven to be costly to develop and grow. These high costs, coupled with potential litigation-related liabilities and regulatory engagement, contributed to the company's inability to generate sufficient cash flows to support its business in its present form. In January, the state of Kentucky sued the company, alleging that the platform preyed on children and led them into self-harm. Chief Executive Officer Colin Adams said in a statement that a court-supervised sale provides the company with the best opportunity to maximize value for all stakeholders. Ahead of the filing, Character.ai entered into an agreement for The Walt Disney Company to serve as a stalking horse bidder to license some of the company's intellectual property for $20,000,000, as well as provide transition services through former employees the media giant hired. Last year, Alphabet subsidiary Google signed a non-exclusive licensing agreement for the startup's large language model technology and rehired its co-founders Noam Shazeer and Daniel De Freitas, both former employees, in a deal that also included more funding for the startup. Character.ai added that it expects to keep operating its platform through the sale process with minimal disruptions, though the platform could end up being wound down. If you built a bot collection on their servers, keep an eye on your projects while the court sorts out the sale.