Character.ai’s bankruptcy is the one of the first dominos to fall in the long-foreseen AI bubble. The circumstances of its bankruptcy are exactly what critics of AI have been saying would happen: Character.ai lit a huge amount of money on fire running its product, did not bring in a lot of revenue, and faced enormous legal fees after causing harm to its users. Enshittifying its product to try to make its expenses cheaper did not work, according to a narrative filed in bankruptcy court Tuesday.

Disney has reportedly offered Character.ai $20 million to license some of its intellectual property; Last year, Disney sent Character.ai a cease and desist letter demanding it stop using its copyrighted characters without permission. In 2023, it was valued at $1 billion after raising $150 million in a round led by a16z.