Analysis
Pulse covered Character.AI's Chapter 11 filing and Disney's involvement the day it was announced. A CEO affidavit filed since then, reported by 404 Media, fills in the financial picture behind the filing. The numbers, by year:
- 2024 compute spend: about $13.8M/month
- 2025 compute spend: down to about $10M/month
- Subscription revenue: peaked at $2.8M/month, at times under $1M
- Jan-Aug 2026 compute costs: $56.1M total
- Jan-Aug 2026 salaries/benefits: $19.7M total
- Current burn (Aug 2026): $8M-$9M/month, which the filing calls an improvement on the prior year's pace but still a significant drain for a company now in bankruptcy.
“Disney had separately sent the company a cease-and-desist letter last year over its use of copyrighted characters.”
The affidavit also narrows the widely reported Disney angle: Disney's $20 million is characterized as a licensing offer for some of Character.AI's intellectual property, not a confirmed sale of company assets. Disney had separately sent the company a cease-and-desist letter last year over its use of copyrighted characters.
CEO Colin Adams, who filed the affidavit, wrote that "Character's impressive technology is expensive to operate" and that "at all times, Character has struggled with profitability and its operational expenditure has been high." He said many employees left after beginning to question the company's long-term viability. The company says it tried to narrow the gap by moving inference to cheaper GPU capacity, post-training open-weight models rather than building its own foundation models, cutting headcount, adding in-app ads in mid-2025 and adding in-app purchases in early 2026 -- none of which closed the gap fast enough. Character.AI also faces a wrongful-death lawsuit from the family of a user who died by suicide after interacting with one of its bots, and regulators have been pushing for stronger age verification given the platform's popularity with minors.
404 Media's reporting frames the filing as evidence for a broader pattern: unlike OpenAI, Anthropic, Meta and Google, which can keep raising capital or subsidize AI products with advertising revenue, a standalone consumer AI company without that backstop runs out of room fast. Character.AI raised $150 million led by a16z at a $1 billion valuation in 2023; five years after launch, that valuation is the clearest marker of how far the business has fallen.