New turn in Character.ai case as 40 attorneys general want protections

Character.ai is in Chapter 11 bankruptcy, and a court controls the sale of its business. Disney agreed a $20 million deal to be the opening bidder.

On Wednesday, October 14, a coalition of 40 attorneys general filed a notice in the bankruptcy court. It wants privacy and safety protections in each sale of Character.ai. The notice includes private chatbot conversations of children and adults. The company expects the sale to end in late November or at the start of December. It will close the platform if no buyer keeps it open.

What the states want

The attorneys general keep the right to challenge a sale or plan that does not give these protections. They also negotiate a settlement on claims that chatbots posed as licensed medical professionals and exposed children to sexual and abusive talks, Reuters reported. Five families reached preliminary settlements.

The numbers

Character.ai spent about $56.1 million on computing from January through August. Its monthly revenue was $5.3 million or less in each month, Dealroom reported. In August, advertising gave $2.5 million and subscriptions gave $2.8 million.

What is not known

The source does not name a buyer. Other buyers can offer more than Disney. 404 Media says legal costs helped to cause the bankruptcy, but the business could not continue with or without them.

Insight: Heavy use makes companion apps cost more than they earn

Heavy users cost most because each reply uses computing. Character.ai users average 120 minutes a day. Andreessen Horowitz found that the top 1% of chatbot subscribers spend about $900 a month, against $25 for a typical subscriber. This reads as a move from flat fees to limits and advertising, because a flat price pays for light users and loses on heavy ones. Builders must price by use.