Character.AI files Chapter 11 as compute costs dwarf revenue

Character.AI filed for Chapter 11 and the supporting affidavit put a public number on what it costs to run a consumer AI chatbot at scale. CEO Colin Adams reported monthly compute spend of $13.8 million in 2024 and roughly $10 million in 2025, according to 404 Media's read of the filing. Peak subscription revenue hit $2.8 million per month, dropping below $1 million at times; peak revenue from all sources topped out at $5.3 million.

"Character's impressive technology is expensive to operate," Adams wrote, adding that "at all times, Character has struggled with profitability and its operational expenditure has been high."

The filing walks through every lever the company pulled. Mid-2025 it added in-app advertising; early 2026 it introduced in-app purchases. Advertising revenue grew from about $0.5 million in July 2025 to roughly $2.5 million in August 2026. Compute got cheaper too, with Adams describing a push toward "transitioning inference workloads to lower-cost GPU capacity and post-training open-weight models." None of it closed the gap. Through the first eight months of 2026, Character.AI spent $56.1 million on compute and $19.7 million on salaries and benefits, and in August the company was still losing between $8 and $9 million a month. Seven of the analysts we track in our Who's Who posted the piece.

The bankruptcy filing also puts a dollar figure on the Disney dispute. After a 2023 cease-and-desist over copyrighted characters, Disney has offered $20 million to license its intellectual property out of the estate.