A Disney shareholder has filed a lawsuit against ex-Disney CEO Bob Chapek, current CFO Christine McCarthy, former streaming executive Kareem Daniel, and Disney itself over losses due to Disney’s streaming services. The lawsuit alleges that there were violations of securities law for misleading statements about Disney+ and the health of Disney’s streaming businesses.
Local 272 Labor Management Pension Fund filed the lawsuit on May 12th in U.S. District Court for the Central District of California. It is seeking a lead plaintiff for a class action lawsuit representing purchasers of Disney shares between December 10, 2020, through November 8, 2022. This is when the company missed earnings guidance and Disney stook gook a hit.
It continues and says that the October 2022 restructuring of the company was “a dramatic departure from Disney’s historical reporting structure” and was designed to “hide the extent of Disney+ losses and to make the growth trajectory of Disney+ subscribers appear sustainable and 2024 Disney+ targets appear achievable when they were not.”
The complaint also says that the restructuring was “hugely controversial within the Company because it took power away from the creative content-focused executives and centralized it in a new reporting group led by defendant Daniel who reported directly to defendant Chapek.”
The complaint is seeking a jury trial and at one point says:
Defendants throughout the Class Period made false and/or misleading statements and/or failed to disclose that: (i) Disney+ was suffering decelerating subscriber growth, losses, and cost overruns; (ii) the true costs incurred in connection with Disney+ had been concealed by Disney executives by debuting certain content intended for Disney+ initially on Disney’s legacy distribution channels and then making the shows available on Disney+ thereafter to improperly shift costs out of the Disney+ segment; (iii) Disney had made platform distribution decisions based not on consumer preference, consumer behavior, or the desire to maximize the size of the audience for the content as represented, but based on the desire to hide the full costs of building Disney+’s content library; and (iv) Disney was not on track to achieve even the reduced 2024 Disney+ paid global subscriber and profitability targets, such targets were not achievable, and such estimates lacked a reasonable basis in fact.
The filing specifically focuses on a November 8 earnings miss by Disney in its quarterly financial results including “a monumental” operating loss of $1.47 billion for streaming. Disney also reported a decline in average revenue per Disney+ subscriber.
“We are aware of the complaint and intend to defend vigorously against it in court,” Disney said in a statement. Local 272 Labor Management Pension Fund is looking for this to become a class action lawsuit. It also is seeking damages as well.
The full filing can be read here:
In November 2022, Chapek was fired and former CEO Bob Iger returned to the role. Shortly after Chapek’s departure, Kareem Daniel was also dismissed. Since then, Iger has been working to put the company back on the right path and get a successor in place before his two-year contract concludes. This has included a new restructuring of the company to focus more on creativity and accountability. Iger has also been dealing with a controversy that erupted during Chapek’s tenure with Flordia Governor Ron DeSantis.
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