Investors Sue Disney, Bob Chapek, Over Disney+ “Cost Shifting Scheme”
As Disney’s stock sits at its lowest level in nearly a decade, the company has been hit with another lawsuit alleging that it misled investors about the success of Disney+ by concealing the streaming platform’s true operating costs
The new lawsuit states that Disney, under the supervision of Bob Chapek, lied about the extent of its losses as it continued to advertise its subscriber growth and claimed that the streaming service was on track to achieve profitability by the end of 2024.
A “Cost Shifting Scheme”
According to the suit, Disney implemented a scheme to “inappropriately shift costs” by debuting content created for Disney+ on legacy platforms to move marketing and production costs.
In an effort to hide losses, the complaint claims, Bob Chapek, Kareem Daniel, and former CFO Christine McCarthy aired The Mysterious Benedict Society and Doogie Kamealoha, M.D. on the Disney Channel despite the fact that they were supposed to be DIsney+ originals. This allowed the company to move some of the expenses related to those shows around and make Diseny+ appear more successful than it actually was.
The complaint was filed on August 23 in California federal court and is at least the third lawsuit over the company’s efforts to boost subscriptions.
Did Chapek Mislead Investors?
In addition to their complaint about how Disney reported the costs of running Disney+, the new lawsuit alleges that Bob Chapek misled investors with some of his public comments.
One example cited in the lawsuit was Bob Chapek’s December 2020 statements he stated that “Disney+ has exceeded our wildest expectations with 86.8 million subscribers as of December 2” and that the “success” of the platform has “bolstered our confidence in our continued acceleration towards a DTC-first business model.”
This forecast represented an “astounding three-fold increase from prior estimates without any degradation in expected profitability for the segment,” the suit says.
The Proof Was Not In The Pudding
Just one year after Chapek’s comments, Disney acknowledged that subscriber growth had slowed in 2021. In Q4, the company’s direct-to-consumer arm reported an operating loss of $1.47 billion- up from $630 million a year before.
Since Chapek’s comments, the company also reported a decline in its average revenue per Disney+, as Disney drove Disney+ numbers by offering the cheaper Disney Bundle.
“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 reads.
Disney did not immediately respond to a request for comment.
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