Character.AI, once valued at $1 billion, has filed for bankruptcy, and its own court filings basically read like a case study in how to burn money on intimacy that people won’t pay for.
The company is one of the best-known names in AI companion chatbots and raised $150 million in a 2023 round led by Andreessen Horowitz. According to filings made public Tuesday, it spent $13.8 million per month on AI computing in 2024 and about $10 million per month in 2025. Yet its subscription revenue peaked at $2.8 million per month and at times fell below $1 million. Revenue from every source, ads included, topped out at $5.3 million per month. From January to August of this year alone, Character.AI spent $56.1 million on computing, and as of August it was still losing roughly $8 to $9 million a month, which the company described as a big improvement. An improvement, yet still a loss.
In an affidavit, CEO Colin Adams was blunt. The company’s technology, he wrote, is “expensive to operate,” and it struggled to turn a profit throughout its life.
The cost-cutting attempts are a perfect example in a how-to guide for making a product worse. Character.AI moved to cheaper GPU capacity, simplified its models, and built on open-weight systems instead of developing its own. It laid off staff, launched in-app advertising in mid-2025, and added in-app purchases in early 2026. Tech outlet 404 Media wrote in May that the changes amounted to what “AI enshittification looks like,” citing ads, usage limits, tighter guardrails, and weakened models.
Legal trouble made things worse. Character.AI was sued by the family of a user who died by suicide after chatting with one of its bots, and regulators have pushed for age verification because the platform is popular with kids. Disney, meanwhile, sent a cease-and-desist letter last year over copyrighted characters, and has reportedly offered $20 million to license some of its intellectual property. The platform says it remains up and running during the bankruptcy process.
The bigger question is whether Character.AI is an outlier or an early warning to the AI community. Nothing in its filings is unique, as many AI firms also spend huge sums on computing without a revenue model that matches their spending, and many face similar lawsuits over copyright and harm to users. The difference is that OpenAI, Anthropic, Meta, and Google can keep raising fresh cash or, in Meta’s and Google’s cases, subsidize AI with giant advertising businesses. Second-tier players like Character.AI can’t. And as the biggest companies’ models improve and loosen their guardrails, they eat into the specialized products smaller companies built. Users can now get much of what Character.AI offered from ChatGPT or Meta’s AI tools.
Or they can instead get it from real humans on platforms like OnlyFans. The subscription platform, according to its updated terms, bans using creator content to train AI and requires AI content to feature the verified creator. So even if AI is used, there is still a real person behind the scenes. OnlyFans, with 47 employees, reported about $1.55 billion in revenue for fiscal 2025 and roughly $709 million in operating profit, while paying creators 80 percent of what fans spend. Those numbers don’t prove people will always choose a human over an algorithm, and AI-driven content will keep appearing in the gaps. But the companionship model that’s sustainable, at least so far, is the one where a person gets paid for being a person.