The Walt Disney Company is facing a lawsuit from its shareholders, who accuse the company’s management of knowingly deceiving investors about the financial health of its flagship Disney+ streaming service.
“Defendants repeatedly misled investors about the success of the Disney+ platform by concealing the true costs of the platform, concealing the expense and difficulty of maintaining robust Disney+ subscriber growth, and claiming that the platform was on track to achieve profitability and 230-260 million paid global subscribers by the end of fiscal year 2024. Specifically, defendants used the newly created Disney Media and Entertainment Distribution to inappropriately shift costs out of the Disney+ platform and onto legacy platforms,” said Stourbridge Investments in an August 23 filing.
“As a result of defendants’ wrongful acts and omissions, and the precipitous decline in the market value of Disney’s securities, plaintiff and the company have suffered significant losses and damages,” the document added. The suit names the company’s former and current CEOs, Robert Chapek and Bob Iger, its former CFO, Christine McCarthy, and several other current and former executives, as defendants.
The complaint also states that the group reported a decline in its average revenue per Disney+ subscriber, as more customers subscribed through a discounted bundle with the company’s other services. “Notably, the bundled offering made up about 40% of domestic subscribers, confirming that Disney was relying on short-term promotional efforts to boost subscriber growth while impairing the platform’s long-term profitability,” the text reads.
The suit also details the company’s pivot to prioritizing streaming amid the pandemic. While the company’s theme parks, resorts and cruise lines were forced to close as movie theaters shuttered, subscriptions to Disney+ rapidly took off, according to the complaint. Investors consider that the company's reorganization represented a “dramatic departure from Disney’s historical reporting structure and was hugely controversial within the company because it took power away from creative content-focused executives and centralized it in a new reporting group.”