Disney Sued for Misleading Investors About Disney+
By Movieguide® Contributor
As Disney’s stock hovers at a 10-year low, investors hit the entertainment giant with a lawsuit, claiming the company misled Wall Street by concealing the cost of operating Disney+.
The lawsuit alleges that Disney executives hid the expense of Disney+ by debuting content on legacy platforms (like Disney Channel) to conceal the “staggering costs” of creating content. Furthermore, the suit claims that the company misled investors by artificially boosting its subscriber count on Disney+.
This lawsuit dates back to the Bob Chapek era of Disney and was largely fueled by his restructuring of the company, in which distribution and commercialization activities were centralized into the Disney Media and Entertainment Distribution (DMED) arm.
“With this new structure, Chapek removed budgetary and distribution control from the heads of Disney’s content groups (much to their dismay) and placed control in the hands of DMED’s new Chairman, defendant [Kareem] Daniel, who reported directly to his long-time mento Chapek,” the complaint explained, noting that the duo “exerted near complete control over the Company’s strategic decisions around content.”
This full restructuring of the company under Chapek 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” led by Daniel. This represented the company’s shift to an “all in” approach on the Disney+ platform, according to The Hollywood Reporter.
Having bet the company’s future on the success of Disney+, Chapek hid any failures of the platform from investors, the suit claims.
For example, THE MYSTERIOUS BENEDICT SOCIETY and DOOGIE KAMEĀLOHA, M.D.—which were originally meant to be Disney+ originals—were also aired on the Disney Channel to split the cost of the show between the two platforms rather than put all the expenses on Disney+, The Wrap reported.
Chapek also misled investors on the long-term health of the streaming platform as he released dishonest information about subscriber growth.
To boost numbers when the platform launched, Disney offered bundles that allowed people to sign up at a reduced price.
In December 2020, Chapek told investors, “Disney+ has exceeded our wildest expectations with 86.8 million subscribers as of December 2,” and that the “success” of the platform has “bolstered out confidence in our continued acceleration towards a DTC-first business model.”
“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 suit added.
Chapek also repeatedly told investors that the platform would turn profitable in 2024.
Cracks began to show in Disney’s façade as early as 2021, when subscriber growth began to slow. During its Q4 report last year, it reported an operating loss of $1.47 billion—more than doubling the $630 million loss during the same quarter last year.
“To conceal these adverse facts, defendants engaged in a fraudulent scheme 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,” a shareholder claimed, per Deadline.
With the unhealthy state of Disney+ now in full view, investors believe they have been misled for years and want to be compensated for the losses they have recently sustained as the stock slumps ever lower.
Movieguide® previously reported:
Shares of Disney’s stock closed at $82.47 last Thursday, marking the lowest close the company has seen since Oct. 16, 2014, when it ended the day at $81.74, Reuters reported.
“From our point of view, Disney has problems across just about every one of its businesses,” KeyBanc Capital Markets analyst Brandon Nispel told MarketWatch.
Disney’s three main businesses—streaming, studios and parks—have all had poor years. This has made it difficult for Disney, who has previously been able to point to one of these avenues as a success even if the others were struggling.
Over 2023, however, the company has, at large, only seen failure.
Now more than ever we’re bombarded by darkness in media, movies, and TV. Movieguide® has fought back for almost 40 years, working within Hollywood to propel uplifting and positive content. We’re proud to say we’ve collaborated with some of the top industry players to influence and redeem entertainment for Jesus. Still, the most influential person in Hollywood is you. The viewer.
What you listen to, watch, and read has power. Movieguide® wants to give you the resources to empower the good and the beautiful. But we can’t do it alone. We need your support.
You can make a difference with as little as $7. It takes only a moment. If you can, consider supporting our ministry with a monthly gift. Thank you.
Movieguide® is a 501c3 and all donations are tax deductible.
Now more than ever we’re bombarded by darkness in media, movies, and TV. Movieguide® has fought back for almost 40 years, working within Hollywood to propel uplifting and positive content. We’re proud to say we’ve collaborated with some of the top industry players to influence and redeem entertainment for Jesus. Still, the most influential person in Hollywood is you. The viewer.
What you listen to, watch, and read has power. Movieguide® wants to give you the resources to empower the good and the beautiful. But we can’t do it alone. We need your support.
You can make a difference with as little as $7. It takes only a moment. If you can, consider supporting our ministry with a monthly gift. Thank you.
Movieguide® is a 501c3 and all donations are tax deductible.
