Disney is facing a lawsuit from investors claiming the company used deceptive accounting methods to hide streaming losses. “Plaintiff brings this action derivatively for the benefit of nominal defendant Disney against certain of the company’s current executive officers and directors aiming to rectify the defendants’ violations of the Exchange Act,” Stourbridge Investments said in the August 23 filing.
Investors are suing Disney, claiming the company has been deceptive about Disney+’s numbers to artificially make the streaming platform look like a win.
The lawsuit alleges that Disney was in breach of its fiduciary duties by issuing “false and misleading statements and/or omitting material information in the company’s public filings and proxy statements” related to streaming from December 10, 2020, to the present day. The plaintiff claims Disney and its top executives covered up the true financial state of affairs of its streaming service.
Even though Stourbridge is initiating the legal action on behalf of Disney, the complaint actually includes the company’s name, as well as the names of former and current CEOs Bob Iger and Bob Chapek, removed CEO Bob Chapek, former CFO Christine McCarthy, former Disney Media & Entertainment Distribution chairman Kareem Daniels, and several other high-ranking executives, Deadline reports.
The New Jersey shareholder further explained the plaintiff’s stance, saying that Disney intentionally devised a deceitful plan aimed at concealing the true extent of losses incurred by its streaming service to create a misleading impression of steady subscriber growth as well as attainable 2024 goals. This assertion mirrors claims made in another recent lawsuit.
Interestingly, there have been at least two previous lawsuits with similar claims about Disney and its streaming service.
More specifically, Disney is said to have used the newly established “DMED entity” to unjustly transfer expenses away from the streaming platform onto older platforms. As part of the legal complaint, Stourbridge is seeking a jury trial. Lawyers from Wilmington, DE and Hewlett, NY will represent the plaintiffs.
Interestingly, there have been at least two previous lawsuits with similar claims about Disney and its streaming service. Driven by gaining more subscribers rather than immediate profits, transferring streaming expenses and losses during Chapek’s tenure eventually became a significant factor in the events that led to McCarthy’s November 2022 coup.
This decision by the former CFO, who has since departed from the company, resulted in Chapek being removed from his position in an unexpected move by the board. Iger then returned to assume his previous role as the highest-ranking figure at Disney, overseeing streaming and other aspects of the company.
Iger was initially only expected to stay for a few years to select his successor, but the board extended the CEO’s contract until July 2026. Meanwhile, Disney’s stock, which includes streaming, saw a slight increase on August 29, closing at $84.39. However, investors have chosen to adopt a cautious attitude towards the company’s shares due to shifts in strategy between the leadership of Chapek and Iger.
[T]he complaint actually includes the company’s name, as well as the names of former and current CEOs Bob Iger and Bob Chapek, removed CEO Bob Chapek, former CFO Christine McCarthy, former Disney Media & Entertainment Distribution chairman Kareem Daniels, and several other high-ranking executives, Deadline reports.
In Disney’s latest quarterly financial report, the losses incurred from streaming were reduced to $512 million. The company also surpassed the expectations of Wall Street in terms of revenue and net income. Disney has consistently highlighted its commitment to achieving a profitable streaming outcome by 2024.
However, certain analysts and experts in the industry have voiced skepticism. Iger acknowledged the difficulty of the current circumstances, referring to the challenges posed by the ongoing strikes involving writers and actors, which have complicated Disney’s efforts to rebuild its streaming service. Disney has not publicly responded to the lawsuit at this time.