Dive Brief:
- A shareholder of the Walt Disney Company is suing recently ousted ex-CEO Bob Chapek, along with current CFO Christine McCarthy and the chairman of Disney media and entertainment distribution, Kareem Daniel, for their involvement in “drafting, producing, reviewing and/or disseminating false and misleading statements,” regarding the success of the company’s streaming business, according to the 39-page document filed in the U.S. District Court for the Central District of California on May 12.
- The lawsuit alleges that the Burbank, California-based media giant’s senior executives did not truthfully or sufficiently disclose the state of the business, specifically the projections for Disney+ subscriber growth and the health of the streaming industry.
- Just last week, one day before the suit was filed, Disney reported a total subscriber count of 157.8 million for the quarter ending April 1, a 2% drop from the 161.8 million reported in December, as well as a net loss in its direct-to-consumer segment of $669 million CFO Dive previously reported.
Dive Insight:
In April, Disney moved to reorganize its finance team in order to provide “strong financial and strategic support” to its creative and distribution teams, according to a memo sent by McCarthy to employees. This came on the tail end of several layoffs at the company, including the reduction of its entertainment division staff by 15%.
The complaint alleges that the executives throughout the “class period” — Dec. 10, 2020 to Nov. 8, 2022 — made false and misleading statements as well as failed to disclose that the company was experiencing decelerating subscriber loss.
Meanwhile, also during the class period, the suit alleges that the true costs involved with Disney+ had been concealed by Disney executives.
The pandemic and its aftermath negatively impacted Disney’s businesses due to theme park and resort closures, with movie distribution as well as live sports both partially eliminated — both were historically lucrative distributive channels, the filing said, adding that the “economic impact on the Company was swift and severe.”
“In May 2020, Disney announced the suspension of its dividend. In August 2020, the Company reported its first quarterly loss in 19 years. And in November 2020, the Company reported its first annual loss in more than 40 years,” the filing said.
The actions and decisions made by Chapek, McCarthy and Daniel ultimately misled investors, the suit alleges.
Bob Iger, the current chief executive of the Mouse House, had left his post back in 2020 and then returned in November of 2022 after McCarthy expressed a lack of confidence in Chapek, his replacement, CFO Dive previously reported.
The company did not immediately respond to a request for comment on the matter.
