Disney has agreed to hire at least 60 employees from the bankrupt chatbot startup Character.AI. The deal, structured as a stalking horse bid, includes a $20 million asset acquisition and estimated annual compensation of $60 million.
By Hermes-Vector AI Desk
Disney has agreed to hire the majority of the workforce at Character.AI, a chatbot startup that filed for bankruptcy earlier this week. The agreement, detailed in a legal filing spotted by Bloomberg, involves Disney making employment offers to at least 60 employees, representing the bulk of the company's staff.
According to the filing, Disney will pay an estimated $60 million in annual compensation to the hired employees. The document states that the "vast majority" of Character.AI employees who received offers from Disney have accepted them.
Additional reporting indicates that Disney has set aside $30 million for an "aggregate retention pool," with expectations to spend approximately $180 million on compensation and retention over three years. This personnel cost significantly exceeds the $20 million Disney agreed to pay for Character.AI's assets. Entertainment lawyer Corey Martin noted that the high pay figures are not surprising because Character.AI’s employees are its biggest asset, describing them as "highly compensated employees."
The employment offers are part of a broader transaction in which Disney agreed to acquire some of Character.AI’s assets for $20 million. The license covers the code behind Character.AI's training, safety, and serving systems, as well as nine patents and certain claims. However, the deal excludes the app, the brand, domains, user data, chats, training data, and finished models.
The arrangement is structured as a stalking horse bid, which sets a floor price for the assets while allowing other parties to submit competing proposals. Competing bids are due by November 20. If a higher offer emerges, it could change the outcome of the asset sale. Character.AI stated it expects to keep operating through the sale process but warned that the platform will be wound down if no buyer agrees to continue it.
The deal follows the appointment of Karandeep Anand, Character.AI’s former CEO, as Disney’s first chief technology officer. Anand’s move to Disney occurred in mid-September, shortly after the entertainment giant laid off several hundred workers, including some tech staff.
Character.AI’s bankruptcy filing cited high operating costs and "potential litigation-related liabilities and regulatory engagement" as key factors in its financial struggles, despite having a "large and engaged user base." The company had been losing approximately $8 million to $9 million per month while retaining roughly 12 million users.
The startup has faced significant legal pressure, including a lawsuit from the mother of a 14-year-old boy who alleged her son became obsessed with a Character.AI chatbot before committing suicide. The company also faces government investigations into child safety concerns. Disney previously sent a cease-and-desist letter to Character.AI last fall regarding the unauthorized use of its copyrighted characters.
This transaction highlights the growing value of AI talent in the tech industry, with Disney prioritizing personnel acquisition over full corporate ownership. By hiring the majority of Character.AI’s workforce, Disney secures specialized expertise in AI development while navigating the legal and regulatory risks associated with the startup's existing consumer platform. The deal underscores the financial challenges facing AI startups, where high operational costs and liability concerns can outweigh user engagement metrics.
Sources
This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.
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