A lawsuit has been filed in the U.S. District Court for the Central District of California by lawyers representing the Local 272 Labor-Management Pension Fund. The suit names former Disney CEO Robert Chapek, Kareem Daniel, the Chairman of Disney Media & Entertainment Distribution (DMED), and current CFO Christine McCarthy.
The pension fund alleges that under the Disney reorganization in 2020, Bob Chapek and other defendants used the restructuring to hide the actual performance of Disney+ from investors, including the costs and losses.
The filing says that the 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.”
As of the last quarter, Disney+ has 157.8 million subscribers, far from the target of 230-260 million by September 2024.
The plaintiffs argue that Disney used a low introductory cost and additional short-term, low-cost promotions to increase the numbers in an unsustainable way. They also say that Disney used the newly restructured DMED branch to hide the Disney+ losses and make the streaming service appear more sustainable.
“..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.”
The current and former Disney employees are also being accused of using the DMED branch to shift costs around from Disney+ to other legacy platforms to make it appear that Disney+ was more financially successful than it was.
Specifically, the suit mentions the Mysterious Benedict Society and Doogie Kameāloha, M.D., which were first aired on the Disney Channel before landing on Disney+.
“As part of a scheme to make Disney+’s financial performance appear more successful than it was, defendants aired certain shows that were supposed to be Disney+ originals – such as the mystery show The Mysterious Benedict Society and the medical drama Doogie Kameāloha, M.D. – first on legacy television networks such as the Disney Channel. By doing so, a significant portion of the marketing and production costs of the shows were shifted away from Disney+ and on to the legacy platforms.”
The lawsuit has been filed as a “securities class action” suit on “behalf of all purchasers of the Disney common stock between December 10, 2020, and November 8, 2022.” This could “include hundreds or thousands of members.”
The case information can be located under the filing Local 272 Labor-Mgmt. Pension Fund v. The Walt Disney Co., C.D. Cal., No. 2:23-cv-03661, filed on 5/12/23.
Disney has given this statement to Bloomberg Law:
“We are aware of the complaint and intend to defend vigorously against it in court.”
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