Employees of Character.AI, a popular app for chatting with AI-powered characters, may not have to look for new jobs after the company’s collapse, because Disney has offered positions to most of them. The startup filed for bankruptcy last week, and many of its employees can now move to the entertainment giant. A large majority of those approached accepted the offer. Disney is thus taking the most valuable asset from a company it accused a year ago of copying its characters: a team that knows how to build chatbots with personalities.
Sixty people for sixty million a year
Details of the deal were revealed in court documents. Disney has committed to offering jobs to at least 60 Character.AI employees, representing most of the company, and paying them approximately $60 million a year in total. It expects salaries and retention bonuses to cost it about $180 million over three years. It has set aside another $30 million for bonuses that will begin vesting one and two years after the deal closes.
There was a clear reason for the urgency. Character.AI admitted to the court that employee morale was declining and the company faced a mass exodus. If the team scattered, Disney would have nothing to acquire. Under the agreement, employees may also explore offers from other companies. The entire deal still has to be approved by the judge overseeing the bankruptcy.
What Disney will and will not buy
Alongside the employees, Disney is also pursuing the technology. For $20 million, it wants to obtain a perpetual, worldwide, non-exclusive license to some of Character.AI’s technologies and patents, as well as any claims against employees who move to Disney. Before the bankruptcy filing, it paid $7.5 million, of which $2 million is a refundable deposit.
What Disney does not want to buy is even more revealing. The license does not cover user data, their conversations, training data, or finished models, including the individual conversational styles that people select in the app. The brand and the app itself are also excluded. Forbes journalist Maureen Kerr describes it as Disney taking the engineers and the license, while the characters, conversations, and audience remain with the bankrupt company.
Keeping its distance from the data makes sense. On October 14, the attorneys general of 39 U.S. states and the District of Columbia warned the court that conversation histories contain sensitive personal information. They also claim that data belonging to underage users was likely incorrectly classified as adult data. The states want the platform’s new owner to introduce thorough age verification and prevent children from engaging in open-ended conversations that may include sexual, violent, or otherwise harmful content.
From a lawyers’ letter to the chief technology officer’s chair
The relationship between the two companies has undergone a dramatic reversal over the past year. About a year ago, Disney accused Character.AI of egregious copyright infringement and sent it a cease-and-desist letter demanding that its characters be removed from the platform. At the time, its lawyers demanded the deletion of chatbots based on Elsa, Spider-Man, and other Disney characters. The company was also concerned that inappropriate chatbot behavior could damage the reputation of its brands, and the startup complied with the demand.
Then, in September of this year, came an unexpected move. Former Character.AI CEO Karandeep Anand became the first chief technology officer in Disney’s history. He took up the position on October 2 and reports directly to CEO Josh D’Amaro. Disney had already announced at the time that a number of technical employees from Character.AI would likely follow Anand.
Anand has had a varied career. Before Character.AI, he led product teams at fintech company Brex, served in Facebook’s leadership, and spent fifteen years at Microsoft, where he was part of the team that built the Azure cloud platform.
What Disney wants to do with artificial intelligence
Disney has not yet announced a specific product, but Anand’s responsibilities and his own words indicate the direction it is taking. The new executive is responsible for enterprise technology, infrastructure, data, artificial intelligence platforms, product development, and engineering. Upon joining, he said he wanted to build on Disney’s technology and help fans around the world connect with their favorite stories and characters in new ways.
This also fits with the new CEO’s plan. Josh D’Amaro, who has led Disney since March 2026, wants to turn the Disney+ streaming service into a hub for films, series, games, and other experiences. Some industry media go further, writing that instead of fighting artificial intelligence, Disney has taken over part of the Character.AI team to help it create AI versions of well-known characters. Other commentators point out that any product allowing people to converse with familiar characters will carry expectations built up over decades of family entertainment. This also entails legal risks and the threat of reputational damage if the AI strays from the character or produces harmful content.
Disney has already made one attempt at AI-generated content. In December 2025, it signed a three-year agreement with OpenAI under which users of the Sora video generator could create short videos featuring more than two hundred characters from Disney, Marvel, Pixar, and Star Wars. The deal also included a billion-dollar investment, and selected fan-made videos were to appear on Disney+. But the plan did not last long. In March, OpenAI announced the end of Sora just six months after launching the standalone app, and the two companies terminated their partnership. No money apparently changed hands because the deal was never finalized.
This time, Disney is not relying on an outside company but is directly hiring the people who built similar technologies. Kerr summarizes it in Forbes by saying that Disney already owns the characters it wants and has hired a team that knows how to build them.
Character.AI failed to turn a profit
Character.AI was not an unsuccessful app. According to an affidavit by company CEO Colin Adams, it is used monthly by about 12 million people, who spend an average of around two hours a day on it. The platform gradually expanded from conversations with a single character to AI-generated images, videos, and audio. Revenue jumped from approximately $7 million in fiscal year 2024 to nearly $24 million a year later.
But the money was disappearing much faster than it was coming in. In August, the company was losing $8 million to $9 million a month and entered bankruptcy with around $57 million in cash. Its high costs were compounded by looming lawsuits and negotiations with regulators. The company was sued by the mother of a fourteen-year-old boy who, she says, became attached to one of the chatbots and later took his own life. Government authorities are also investigating the app over child safety concerns.
The company therefore searched in vain for a buyer. Since August 2025, an investment bank approached around 28 potential buyers and investors, but they considered the litigation and regulatory risks too great, resulting in only one unworkable proposal.
The auction could still change everything
For now, Disney is acting as the so-called stalking-horse bidder, leaving room for other buyers to submit higher bids. The court is set to review the process on October 30, bids are due by November 20, and the auction itself is scheduled for November 23. A competing bidder would have to offer at least $21.7 million, which includes a $700,000 breakup fee for Disney.
For the app’s users, the auction is a matter of survival. The company expects the sale to conclude in late November or early December. If no buyer willing to continue operating the platform is found, Character.AI will shut down.
In many ways, the deal resembles what happened in 2024, when Google paid about $2.7 billion for a non-exclusive license to Character.AI’s technology and a release of claims, bringing the company’s founders back to Google. Google now appears in the bankruptcy filing as the largest unsecured creditor, with Character.AI owing it approximately $4.1 million.
Sources: techcrunch.com and forbes.com
