Disney to buy $20m of Character.ai assets, following suicide allegations

The “stalking horse” deal will enable Disney to bid on certain pieces of Character.ai’s intellectual property and claims. However, the agreement is still subject to higher or better offers.

Founded in 2021, Character.ai is an AI entertainment platform that lets users create, roleplay, and build worlds through modalities like Chat, Books, Series, and Comics. The start-up has since faced lawsuits around allegations that its chatbots have advised users to cut, starve or kill themselves, according to an unredacted version ​of a filing by Kentucky’s attorney general, which was shared with Reuters. While the filing did not name all the users’ ages, it alleges that some were children. Likewise, in January 2026, a lawsuit was settled around Sewell Setzer III, a 14-year-old in Florida who died by suicide after a Character.AI ​chatbot allegedly encouraged him to do so.

Character.ai also intends to continue operating its platform as it conducts the sale process. The company anticipates that the completion of the sale process and the closing of any resulting transactions will occur in late November 2026 or early December 2026.

“Over the past year, Character.ai has taken meaningful steps to sustain and improve its business in the face of significant legal, regulatory, and operational headwinds,” said Colin Adams, CEO, Character.ai. “After a comprehensive review of the available alternatives, the board determined that this court-supervised sale process provides the company with the best opportunity to maximise value for all stakeholders. As we navigate this process, maintaining a safe and engaging user experience for our Character.ai community remains a top priority.”

Disney’s interest in AI companies began last year, with its decision to invest $1bn in OpenAI. That licensing arrangement to let users make videos with copyrighted characters has since been axed, following the AI company’s termination of its video generation tool Sora.

The Walt Disney Company also recently appointed Karandeep Anand to the newly created position of Senior Executive Vice President and Chief Technology Officer. Anand, who most recently was CEO of Character.AI, joined Disney on 2 October 2026 and reports directly to Disney CEO Josh D’Amaro.

The move comes as Josh D’Amaro, CEO, Disney, is sharpening Disney’s focus on technology as a driver of growth across the company. Since becoming CEO, D’Amaro has emphasised deepening Disney’s direct relationships with consumers by creating a more connected Disney experience, with Disney+ as the digital centrepiece.

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