Character.ai’s bankruptcy is the one of the first dominos to fall in the long-foreseen AI bubble. The circumstances of its bankruptcy are [exactly what critics of AI have been saying would happen](https://www.404media.co/lobotomized-character-ai-is-showing-what-ai-enshittification-looks-like/): [Character.ai](http://Character.ai) lit a huge amount of money on fire running its product, did not bring in a lot of revenue, and faced enormous legal fees after causing harm to its users. Enshittifying its product to try to make its expenses cheaper did not work, according to a narrative filed in bankruptcy court Tuesday.
Character.ai is one of the best-known AI chatbot companies that has become popular in the AI companion space. The company has faced various legal problems after being sued by the family of one of its users who killed himself after chatting with a Character.ai chatbot, and has been the [target of regulators pushing for age verification](https://www.404media.co/44-attorneys-general-to-ai-chatbot-companies-open-letter/) tech because of its popularity with kids. In its bankruptcy filings, the company says that its enormous legal costs contributed to its bankruptcy, but that even without the legal problems, its business was wildly unsustainable.
Not saying the premise regarding AI economics is wrong. However, the downfall of character ai is not at all emblematic of the AI industry. All the company’s important talent (including the founder and cofounder) left to Google in 2024 (2.7bn deal). This company hasn’t been relevant and has been on life support since.
MGTakeDown on
People want ai to go away so bad but someone is going to be the winner. It’s not like all of ai is going to fail. There is definitely going to be some big losers though.
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Character.ai’s bankruptcy is the one of the first dominos to fall in the long-foreseen AI bubble. The circumstances of its bankruptcy are [exactly what critics of AI have been saying would happen](https://www.404media.co/lobotomized-character-ai-is-showing-what-ai-enshittification-looks-like/): [Character.ai](http://Character.ai) lit a huge amount of money on fire running its product, did not bring in a lot of revenue, and faced enormous legal fees after causing harm to its users. Enshittifying its product to try to make its expenses cheaper did not work, according to a narrative filed in bankruptcy court Tuesday.
[Disney has reportedly offered](https://www.businesswire.com/news/home/20261012656385/en/Character.ai-Initiates-Voluntary-Chapter-11-Proceeding-to-Facilitate-Value-Maximizing-Sale-Process?ref=404media.co) [Character.ai](http://Character.ai) $20 million to license some of its intellectual property; Last year, [Disney sent Character.ai](http://character.ai/?ref=404media.co) a cease and desist letter demanding it stop using its copyrighted characters without permission. In 2023, it was valued at $1 billion after raising $150 million in a round led by a16z.
Character.ai is one of the best-known AI chatbot companies that has become popular in the AI companion space. The company has faced various legal problems after being sued by the family of one of its users who killed himself after chatting with a Character.ai chatbot, and has been the [target of regulators pushing for age verification](https://www.404media.co/44-attorneys-general-to-ai-chatbot-companies-open-letter/) tech because of its popularity with kids. In its bankruptcy filings, the company says that its enormous legal costs contributed to its bankruptcy, but that even without the legal problems, its business was wildly unsustainable.
Read more: [https://www.404media.co/character-ais-bankruptcy-documents-show-the-economics-of-ai-dont-work/](https://www.404media.co/character-ais-bankruptcy-documents-show-the-economics-of-ai-dont-work/)
Not saying the premise regarding AI economics is wrong. However, the downfall of character ai is not at all emblematic of the AI industry. All the company’s important talent (including the founder and cofounder) left to Google in 2024 (2.7bn deal). This company hasn’t been relevant and has been on life support since.
People want ai to go away so bad but someone is going to be the winner. It’s not like all of ai is going to fail. There is definitely going to be some big losers though.
Surprise, said no one