Disney Investors’ Lawsuit Advances Over Alleged Misleading of Subscribers Growth and Profitability Targets
A federal judge has ruled in favor of investors advancing a lawsuit against Disney, alleging they were misled about the extent of the entertainment giant’s losses related to its subscriber growth and profitability targets under former CEO Bob Chapek’s leadership. The lawsuit, filed in 2023, accuses Disney of deceptive conduct in its portrayal of the streaming platform’s financial health.
Background of the Lawsuit
During Chapek’s tenure as CEO, Disney witnessed a significant shift towards prioritizing its streaming service, Disney+. As the pandemic forced closures of theme parks, resorts, and movie theaters, Disney+ subscriptions skyrocketed. Chapek, aiming to hide the costs associated with Disney+ and project profitability by 2024, allegedly resorted to strategic maneuvers such as overhauling the executive leadership structure and reorganizing content distribution efforts.
The Allegations
Investors claim that Chapek and other executives engaged in corporate maneuvering to boost short-term subscriber growth and conceal escalating costs. The reorganization of Disney’s media and entertainment operations centralized control under the Disney Media and Entertainment Distribution arm, allegedly aimed at driving Disney+ subscriptions by limiting theatrical releases and diverting exclusive content to the streaming platform.
The Fallout
As Disney’s content spend soared to $33 billion in 2021, with a substantial focus on Disney+, the company reported a quarterly operating loss of $1.47 billion in 2022. Chapek’s abrupt ousting and former CEO Bob Iger’s return marked a shift in strategy, with subscriber targets withdrawn and content spend slashed. The move led to significant impairment losses as over 50 Disney+ shows and films were scrapped.
Key Points Highlighted in the Lawsuit
Former Disney employees supported the allegations, citing pressure to meet unrealistic targets and a focus solely on subscription growth. The lawsuit also exposed promotional strategies that artificially inflated subscriber numbers through discounted subscriptions with Verizon. The court pointed out alleged insider trading practices by top executives and violations of internal accounting policies related to cost shifting.
Conclusion
Disney’s aggressive pursuit of subscriber growth under Chapek’s leadership has come under scrutiny as investors seek accountability for alleged deceptive practices. The court’s decision to allow the lawsuit to proceed signifies a significant development in holding Disney accountable for its corporate actions. As the legal battle continues, it raises questions about transparency, accountability, and ethical standards in the entertainment industry. Investors, consumers, and industry observers will closely monitor the proceedings as Disney navigates through this challenging period.