Character.ai told a bankruptcy court it had cut costs and added ads, yet as of August it was still losing about $8 to 9 million a month.
Character.ai, a company that makes AI chatbot characters, has filed for bankruptcy. CEO Colin Adams wrote in a court affidavit that the technology is 'expensive to operate'.
The numbers
In 2024 the company spent $13.8 million a month on AI compute, and in 2025 it spent $10 million. Subscriptions peaked at $2.8 million a month, and total revenue, ads included, peaked at only $5.3 million. As of August 2026 it was still losing roughly $8 to 9 million a month.
Cutting costs could not save it
So the company switched to cheaper models, laid off staff, put ads into chats and added in-app purchases. Critics call this enshittification, and Adams all but admitted it was the plan: attract users with a good product, then squeeze them with a worse one.
Big players have cash, second-tier firms don't
OpenAI and Anthropic burn cash too, but they can keep raising new money. Meta and Google subsidise their AI with ad profits. Ever-better frontier models will also keep eating the users of niche products like Character.ai.
Put plainly, building something dazzling with AI does not mean it can make money. For second-tier players without a deep-pocketed backer, the runway is over.
Why it matters
Heavy usage does not make a healthy business when every conversation carries a compute bill. Character.ai's books show that growth alone brings no profit; only companies with ad revenue or deep-pocketed backers make it to the next funding round.
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