Disney Pays $180M for AI Team Amid Layoffs

The studio The Walt Disney Company has budgeted around $180M over three years for compensation and retention of 66 employees who moved to it from bankrupt Character.AI. The figure surfaced in the startup's bankruptcy filings submitted to the Delaware court; the employee terms were first described by business publications.

On an annual basis, total compensation is estimated at roughly $60M — for a team that was still on the chatbot service's payroll in late September. That is what Disney is willing to pay for technical specialists in the same year it was conducting layoffs itself.

What exactly the money goes toward

Of the roughly 86 employees on Character.AI's books at the end of September, 66 moved to Disney — nearly the entire staff. The terms are set out in a term sheet signed on September 18: no more than six key employees, including the company's CEO, were to accept job offers, and at least 60 more people were to receive offers. The filings state that the overwhelming majority of those who received offers accepted.

The payment structure looks like this:

• around $60M a year in total compensation for roughly 65 employees — salaries, bonuses and Disney shares;
• a separate $30M retention fund, paid out in installments on the first and second anniversary of hiring and only to those who stay;
• this money goes directly to the employees and does not count as compensation to Character.AI itself — creditors have claims on $20M, but not on $180M.

Disney is not buying the company itself. Its entity Disney Worldwide Services signed a stalking horse bidder agreement with Character Technologies: $20M for a non-exclusive perpetual license to part of the technologies and for a set of the company's requirements regarding the employees who moved over. The license includes the post-training and training stack, the safety stack, the inference stack, the user age prediction model, the long-term dialogue safety monitoring system, moderation tools, the multimodal image and video generation stack, and nine patents. Not included are the app, the brand, domains and social media accounts, user data and chat logs, training datasets and finished models. Disney receives a copy of the systems; the original stays with Character.AI. Of the $20M, $7.5M was paid before the bankruptcy, the rest on closing of the deal.

The person around whom the entire structure is built is Karandeep Anand, the former CEO of Character.AI. In September, Disney appointed him the first corporate-level chief technology officer in its history. He officially started work on October 2, and ten days later Character.AI filed for Chapter 11 protection.

Layoffs all year, benefits cut starting next

The backdrop against which these figures appeared matters more to the industry than the sum itself. Disney cut staff in January, around a thousand people in April, several hundred in July, including roughly 150 at Pixar. The September layoffs affected technical specialists among others, and the cuts continue under new CEO Josh D'Amaro. In September, the company's chief legal officer warned employees that his department would shrink substantially: Disney is considering automation, outside vendors and outsourcing.

From 2027, Disney is restricting medical insurance for employees' spouses: if a spouse can get a policy from their own employer, they can no longer be added to the Disney plan — even if that employer's terms are worse. Meanwhile, operating income across the company's segments in the third fiscal quarter came to $5.6B, up 21%, and the share buyback plan for the fiscal year was raised to at least $9B.

The comparison looks unambiguous for the studio's artists and technical specialists: production roles are being cut, while the company pays a premium price for AI expertise.

Why hiring a team is easier than buying a company

The "license plus hiring" scheme is nothing new for the AI market. In August 2024, Google struck a licensing agreement with Character.AI worth roughly $2.7B, under which the company's founders moved to Google. The format lets the buyer obtain technologies and people without taking on liabilities and litigation risks. Character.AI had accumulated plenty of those: the service's legal problems relate mainly to interaction with minors, and the filings say that of the roughly 28 potential buyers approached by the company's bank, none wanted to do the deal — the product and audience were rated highly, but the litigation and regulatory risks were deemed excessive. Disney separately demanded that the deal be conducted through a Chapter 11 sale process, citing the startup's dwindling cash and the same risks.

This is probably a change of approach. Disney had previously offered to invest $1B in OpenAI together with a licensing deal on Sora, but the agreement fell apart a little over three months later, before the money was transferred. Against this backdrop, the studio will probably rely less on outside vendors of generative models and build its own technical vertical — with engineers in-house, its own safety and moderation stack, and direct control over how its characters end up in AI products.

For the studio pipeline, this looks like a reallocation of budget: money that previously went to production staff is going into platform development. The fate of the Character.AI service itself will be decided in court: competing bids are accepted until November 20, the auction is set for November 23, and the sale hearing for November 24. If no buyer is found or the court rejects the deal, the platform will be wound down.

Community reaction

The tone of the discussion is more skeptical than enthusiastic. In the animation community, the deal is read as a statement of priorities: against a backdrop of repeated layoffs, benefit cuts and billions spent buying back its own shares, the company is willing to pay around 180 million dollars over three years to sixty-six people from bankrupt Character.AI. The same contrast is repeated outside the studios as well — the money is there, it is just not being spent on those already working at Disney. In the technology camp, the argument is different. Some see not the purchase of a service but the hiring of a team: people are being offered many times more than code and patents, while the lawsuits, including claims over a teenager's death, remain in the bankruptcy proceedings. Others call the bankruptcy itself a way to shed liabilities and carry out a covert acquisition. A separate thread is the concern that the developers of a chatbot already subject to lawsuits are now moving to a company whose stories children watch. There is almost no outright approval: opinions split between outrage over the staffing decisions and the cold conclusion that the asset here is the people, not the product.

"After repeated layoffs, Disney plans to spend 180 million dollars over three years on pay and retention for 66 people from bankrupt chatbot startup Character.AI. Add in the benefit cuts and billions spent buying back its own shares — the company's priorities seem clear."

— @cartoonbrew (X)

"Disney reportedly laid off hundreds of people and then agreed to spend 60 million dollars a year on 66 Character.AI employees. Companies don't necessarily lack money. They lack reasons to spend it on the people who already work for them."

— @DevByLakshya (X)

"Disney is paying about 180 million over three years for 66 Character.AI employees and 20 million for the code and nine patents. Read that again. The people cost roughly nine times more than the machine. The wrongful death suits stay in the bankruptcy. The real asset is the people."

— @Kajoe254 (X)

What lies behind Disney's bet on an expensive AI team while laying people off: pressure from the streaming market, a shortage of AI specialists, miscalculations in hiring?