Character.AI filings show compute costs dwarfed revenue

Court documents in Character.AI's Chapter 11 case show a company that spent far more running its chatbots than it ever brought in. As of August, it was still losing about \$8 million to \$9 million a month, even after deep cost cuts.404media

Character Technologies, the company that runs the AI companion app, filed for voluntary Chapter 11 protection on Monday, Oct. 12, in the U.S. Bankruptcy Court for the District of Delaware. It plans to sell all or nearly all of its assets. In the filings, the company said AI entertainment "has proven to be costly to develop and grow." It said those costs, along with possible legal liabilities and dealings with regulators, left it unable to bring in enough cash to keep the business going in its current form.cnbc+1

Compute bills far above revenue

In an affidavit, CEO Colin Adams wrote that "Character's impressive technology is expensive to operate" and that the company "has struggled with profitability" from the start, 404 Media reported. According to the filings, Character.AI spent \$13.8 million a month on AI compute in 2024 and \$10 million a month in 2025. Subscription revenue peaked at \$2.8 million a month and at times fell below \$1 million. Revenue from all sources, including ads, never went above \$5.3 million a month.404media

Between January and August 2026, the company spent \$56.1 million on compute and \$19.7 million on salaries and benefits. The filing says many employees left because they "began questioning Character's long-term viability".404media

Cheaper models, fewer staff, more ads

Adams said the company cut its burn by moving inference work to lower-cost GPU capacity and by adapting open-weight models instead of building its own foundation models. It also reduced headcount, began showing in-app ads in mid-2025 and added in-app purchases in early 2026. 404 Media had earlier described these changes, which brought more ads, usage limits and weaker models, as "what AI enshittification looks like".404media

The company also faces lawsuits over chatbot safety. In January, Kentucky sued Character.AI, alleging the platform "preyed on children and led them into self-harm". The filings list estimated liabilities of \$50 million to \$100 million. The company's largest unsecured creditor is Google Alphabet Inc. ↘ 1.68%, which is owed about \$4.1 million in trade payables.androidheadlines+2

Disney leads the sale

Before filing, Character.AI agreed to make Disney The Walt Disney Company ↗ 0.38% the stalking-horse bidder. Disney would pay \$20 million for a non-exclusive, perpetual license to some of the company's intellectual property and legal claims, and would provide transition services through former Character.AI employees it has hired. Disney's bid does not cover the app itself.unite+2

Adams said a court-supervised sale "provides the Company with the best opportunity to maximize value for all stakeholders". The company expects the sale to close in late November or early December. It has said the platform will keep running with minimal disruption until then, but will be wound down if no buyer agrees to keep it going.cnbc+1