Disney called Character.ai's chatbots dangerous to children — now it is the bankrupt company's first bidder
Disney's $20 million will not save the app millions of people chat on. The part of Character.ai it really wants started work at Disney earlier this month.
Character Technologies, the company behind Character.ai, filed for Chapter 11 bankruptcy in Delaware on 12 October 2026. The opening bid for its assets came from Disney Worldwide Services: $20 million, which makes Disney the stalking horse, the buyer who sets the floor before anyone else is allowed to bid higher.
The interesting part is what that money buys. Not the app, not the chatbots, not the characters users spent years building. Disney is bidding for a non-exclusive, perpetual licence to some of the company's intellectual property and claims, plus transition services from former Character.ai employees. Employees Disney has already hired.
The letter Disney sent a year ago
In September 2025, Disney's lawyers sent Character.ai a cease-and-desist letter, first reported by Axios. On paper it was about copyright: users had been chatting with bots built on Disney, Pixar, Marvel and Star Wars characters. But the letter went well beyond a standard IP grievance.
"...sexually exploitive and otherwise harmful and dangerous to children."
— Disney's cease-and-desist letter to Character.ai, September 2025
Character.ai didn't fight it. The Disney bots came down, and a spokesperson said the company wanted "to partner with the industry and rightsholders to empower them to bring their characters to our platform".
Fair enough: a studio protecting its brand and its youngest fans. Then the next twelve months happened.
From cease-and-desist to job offer
The sequence is short enough to fit on a Post-it note, and it is not the one you would expect from a company that called a platform a danger to children.
- September 2025: Disney demands its characters come off Character.ai. They do.
- 18 September 2026: Disney names Karandeep Anand, then Character.ai's chief executive, as its first-ever chief technology officer.
- 2 October 2026: Anand starts at Disney, reporting directly to CEO Josh D'Amaro. More of the startup's technical staff are expected to follow him.
- 12 October 2026: Character.ai files for bankruptcy, with Disney at the front of the queue.
Put together, that is a tech chief, a share of the engineers and, if the court signs off, a licence to the technology, all from one platform Disney wanted nowhere near its characters.
The company Disney said was dangerous to children is now where Disney found its chief technology officer.
The price is less than 1% of the $2.7 billion Google reportedly paid in August 2024 to license the same startup's technology and hire back its founders, Noam Shazeer and Daniel De Freitas. Being stripped for parts by Big Tech while staying technically alive is becoming Character.ai's speciality.
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What happens to the app
The sale runs under Section 363 of the US Bankruptcy Code, so $20 million is only the floor: rival buyers can still come in higher. In its filing the company put both its assets and its liabilities at somewhere between $50 million and $100 million.
The app keeps running in the meantime. But Disney's offer does not include the platform, and the company says that if no buyer agrees to keep the service going, Character.ai will be wound down. The sale is expected to close in late November or early December.
Users on r/CharacterAI have taken it about as well as you would expect. One of the top comments on the bankruptcy thread puts it bluntly: "Disney, one of the companies that made it a martyr, bought its name." The same commenter's advice to everyone else: "It is time to export your characters."
Disney has not promised to keep a single chatbot online. It does not need to: the people who built them already have Disney badges.
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