This week, Character.AI declared bankruptcy. While some saw the fall of a chatbot platform as a harbinger for the industry, court filings indicate that the decision was actually a key part of a deal that has let Disney hire most of Character.AI’s staff—including its now former CEO Karandeep Anand—potentially acquire most of Character.AI’s technology, and avoid the beleaguered startup’s many legal liabilities and obligations.

In the past few years, Character.AI has faced multiple private lawsuits over the safety of its chatbots, as well as investigations from regulators around the world. In a declaration filed as part of the bankruptcy, Character.AI’s newly appointed CEO explained that the goal of the bankruptcy was to reach a “consensual resolution” with personal injury claimants and a group of states investigating the company, while maximizing the value of the company’s assets for shareholders.

The Disney deal seems to be structured so that whatever is left of Character.AI will retain responsibility for those legal battles, some of which are still ongoing.

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In a bankruptcy proceeding that kicked off yesterday, Disney has offered to buy some of the technology that powers the controversy-plagued chatbot Character.AI.

Disney is willing to pay $20 million for “a non-exclusive perpetual license” of certain Character Technologies intellectual property, the chatbot maker said in a press release that did not go into much further detail on which assets Disney wanted.

The move may be surprising. In September 2025, Disney joined others in publicly criticizing Character.AI for stealing content and harming kids. Specifically, Disney sent a strongly worded cease-and-desist letter that accused Character Technologies of weaponizing Disney characters “in a way that could damage its brand long term,” Axios reported.

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Epic Games is shifting to an "AI first" development strategy for its collaboration with the Walt Disney Company, letting AI models write all the code and guide all the artwork for an upcoming shooter. That's according to a Bloomberg report, which cites unnamed people familiar with the project who commented on the significant pivot in internal development at the Unreal Engine maker.

Human developers will be tasked with managing and guiding code and art assets generated by models such as Anthropic's Claude, according to internal Epic employee messages viewed by Bloomberg. That means "no more hand-written code" and art assets "generated with full AI workflows," according to the report.

The $1.5 billion collaboration between Epic and Disney, announced in early 2024, was slated to release a Marvel- and Star Wars-themed shooter in March 2027. That project has now been delayed indefinitely amid the AI-related shakeup and understaffed, slower-than-expected development thus far, according to the report.

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