By PYMNTS | October 19, 2026
Highlights
Character.ai spent $56.1 million on computing from January through August, while its monthly revenue exceeded $5.3 million.
AI companion apps generated $150 million in mobile revenue in the first quarter of 2026, more than 12 times the first quarter of 2023.
40 state attorneys general asked the bankruptcy court to attach privacy and safety protections to any sale of Character.ai.
Character.ai, an artificial intelligence (AI) companion platform that lets users chat with AI versions of their favorite characters, filed for Chapter 11 on Oct. 12. About 12 million monthly users could not make it profitable. The company was losing $8 million to $9 million a month, CEO Colin Adams said in a Oct. 12 declaration.
Every exchange with an AI companion requires computing power, so a longer conversation costs its maker more than a short one even when both customers pay the same monthly fee. A streaming subscription works differently, because another hour of viewing adds relatively little expense. Character.ai’s users averaged 120 minutes a day in the app, TechCrunch reported.
Computing Cost Character.ai $56.1 Million in 8 Months
Character.ai spent about $56.1 million on computing from January through August, while its monthly revenue from all sources never rose above $5.3 million, Dealroom reported. Each reply runs inference, the computing capacity a model needs to generate an AI response, and the cost varies with the model, conversation length and features used.
AI companions are built to encourage repeated engagement, so users return throughout the day and continue conversations with the same digital characters. A customer who sends a handful of messages a day may cost relatively little to serve, while one who spends hours with a companion can consume far more computing without adding subscription revenue.
Character.ai had already cut its computing bill. It spent $13.8 million a month on computing in the second half of 2024 and $10 million a month in 2025, according to the declaration, PPC Land, an advertising trade publication, reported. The company said it lowered costs by moving inference to lower-cost GPU capacity and post-training open-weight models rather than building its own, and by cutting headcount, the same report said.
Before filing for Chapter 11, Character.ai agreed to a $20 million deal with The Walt Disney Company, PYMNTS reported. Disney will be the stalking horse bidder, the opening offer other buyers must beat, for a non-exclusive, perpetual license to certain Character.ai intellectual property. Disney will also use former Character.ai employees it hired to help the platform operate safely for a limited period. Rival buyers can still outbid it, the company’s news release said.
We’d love to be your preferred source for news.
Please add us to your preferred sources list so our news, data and interviews show up in your feed. Thanks!
Companion App Revenue Hit $150 Million in One Quarter
AI companion apps generated $150 million in mobile revenue in the first quarter of 2026, more than 12 times the first quarter of 2023, Sensor Tower, a mobile app data firm, found in its “State of AI Apps 2026: APAC Edition.” Sensor Tower’s report also found revenue growing faster than users, so the average user is paying more.
As revenue grows, providers are limiting what each subscription tier includes. Replika, the companion app from San Francisco developer Luka Inc., sells voice messaging and image generation on its Pro plan and saving messages to memory on its Ultra plan. Its top Platinum plan caps Training Mode at 100 uses a week and its “Read Replika’s Mind” feature at 50 messages a week, according to the company’s help center.
Character.ai chose to tap advertising revenue, which supplied $2.5 million of its $5.3 million in August revenue while subscriptions supplied $2.8 million, according to Dealroom.
40 State Attorneys General Seek Conditions on Character.ai Sale
A coalition of 40 attorneys general filed a notice Wednesday (Oct. 14) asking the bankruptcy court to require privacy and safety protections in any sale of Character.ai’s business or assets, the Massachusetts attorney general’s office stated. The notice covers private chatbot conversations involving children and adults.
The states are negotiating a settlement with Character.ai over allegations that its chatbots impersonated licensed medical professionals and exposed children to sexualized and abusive interactions, Reuters detailed. Character.ai has also reached preliminary settlements with five families who sued over chatbot harms. Legal costs contributed to the filing, but the business was unsustainable even without them, 404 Media noted, citing the company’s bankruptcy documents.
The states reserved the right to challenge any sale or plan that falls short of their requested protections. Character.ai expects the court-supervised sale to finish by late November or early December and will wind the platform down if no buyer keeps it running, the company announced.