Today, we’re sharing that Character.ai has initiated a voluntary Chapter 11 bankruptcy process to facilitate a court-supervised sale of the company.
Over the past year, we’ve taken meaningful steps to sustain and improve our business amid significant legal, regulatory, and operational headwinds. After a comprehensive review of our available alternatives, our board determined that this court-supervised sale process provides us with the best opportunity to maximize value for all of our stakeholders.
We hope that the sale process will yield an actionable proposal that will allow continued operations of the Character.ai platform. If such a bid is unavailable, however, the platform will be wound down.
As we navigate this process, maintaining a safe and engaging experience for our community remains a top priority.
- Why did Character.ai file for Chapter 11?
Over the past year, we have taken meaningful steps to sustain and improve our business amid significant legal, regulatory, and operational headwinds.
After a comprehensive review of available options, we determined the best path forward was to begin a Chapter 11 case to pursue a court-supervised sale of all or substantially all of our assets. We believe that this court-supervised process both maximizes the value of our business and provides the best opportunity for continued service to our platform users.
What a lot of people here don’t seem to get is that the way this is going to work the governments will not allow a total implosion of the AI sector. They’ll get bailouts, they’ll get national security critical designations.
Instead what will happen is a survival of the fittest (or most well connected which might as well be fittest under capitalism though hand of the market believers will sob at it). Smaller less fit companies will implode. Their assets and anything of value will be bought up at fire sale prices by the larger companies who will increasingly centralize control of the AI market to just a few big players, probably 2 at most in the US at least. This strengthens the position of the remaining players and makes them more viable because other companies have subsidized some of their build and capacity now through the magic of bankruptcy which mostly screws the non-bourgeoisie retirement investors or day-traders and the like.
It’s like people hoping that HBA RAM or used enterprise SSDs/HDDs will flood the market in the event of this when no they’ll be bought up for pennies on the dollar by these other companies as part of their bankruptcy proceedings. Why sell and deal with individual customer service to a bunch of consumers who best case spend 4-5 figures when you can sell it all in one go, no obligation to technically illiterate people, no warranty implied or otherwise to a big corporation for millions in your bank account tomorrow with the buyer assuming all liabilities for any duds included.
Once the consolidation occurs they can actually consider starting to charge close to or at their actual costs due to lack of competition (that and a helpful national security ban on any Chinese AIs and probably a US government certification program that any AIs used in “sensitive” sectors have to be approved by which just so happens to only include the big ones left).
IMO at that point and only at that point will we see if the whole thing falls on its face because it’s too expensive and the bourgeoisie have run out of patience waiting for the actuality of their magic prole-replacer and discipliner in one and start dropping it and hiring real humans again and constraining AI use to control costs. Even that won’t be the end of AI as it’ll improve, grow more efficient and eventually come back around for a second attack on at least some significant amount of jobs (or change working in some other way like becoming an essential part of many jobs and because it’s doing a lot of the “thinking” for people suddenly 10 hour work days become the norm in those roles leaving people even more like zombies and left vulnerable to the AI doing all their thinking for them).
Of course at the point that the centralization happens I do think it’s very likely the retirement funds of a lot of Americans and others are looted in the resulting market crash and a great transfer of wealth happens to the bourgeoisie.
But the first failures could easily come a year or two before the whole thing enters a crisis so while this could be the first pebble of the rockslide it also could just be a lone pebble.
They’ll certainly get bailouts, but the world has changed since the US could just solve problems by throwing dollars at it. We are now living in a world where the dollar is losing its reserve currency status, slowly but surely, and a massive bailout for a completely unproductive industry will only accelerate it.
There’s also the way that the datacenter boom is already destroying the real economy:
The only way to save the economy is to stop building datacenters. If they get bailed out, though, this trend will accelerate into a crisis as the rest of the economy slips into a depression to pay for the unproductive datacenter buildout. Bond yields will surge, no one will be able to afford the interest rates for loans on new construction, the entire US economy would stall out and implode.
Also, there’s an ongoing energy crisis. We’re on the precipice of a food crisis too, with a record breaking El Niño year happening during a time when urea and diesel prices have surged. That will bring instability to the world, suddenly, a lot of vital US inputs in the global economy might start to experience explosions of popular resistance as prices for grain surge. That’s going to happen whether or not datacenters are bailed out, but a bailout would make this even worse by destabilizing the dollar.
Money is real now.
As others said, the Fed will want to bail out the hyperscalers, but there is no money left, and it may cause actual riots across the country as the public near universally despises these companies. The economy is in a recession if you take the 8 tech companies out of the equation, and the interest rate on data center construction is essentially the only lever the Fed is gonna be able to pull to clamp down on inflation. I don’t see a viable path to bailing out the trillions in debt that the hyperscalers have accumulated
A few thoughts. First, there really are only two big players: OpenAI and Anthropic. Nobody else is doing anything meaningful besides renting from them. The loss of these smaller companies is bad for those two because it’s the loss of customers. Second, these little guys don’t have any assets or IP of value to snatch up. There’s nothing useful or desirable to buy, and so all their value will just evaporate away.
Google is actually pretty solid and competitive 3rd, and IDK if you want to count DeepSeek or not.
I’m only talking American companies.
most of us were around for the GFC, we know what’s coming we’re just fully jokerfied
(This is a good summary though)