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Character.ai Bankruptcy Exposes the High Cost of AI Companionship

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Character.ai Bankruptcy Exposes the High Cost of AI Companionship

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.

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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.

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.


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