Disney Accused of Misleading Investors on Streaming Revenue (1)

The Walt Disney Co.'s controversial reorganization in October 2020 under a new CEO facilitated a scheme to hide steep costs associated with its Disney+ streaming service, an investor alleges in a proposed class action.

Disney, its then-CEO, Robert Chapek, and other executives are named as defendants in the suit, filed May 12 in the US District Court for the Central District of California by a pension fund.

They “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” by the end of fiscal year 2024, the complaint says.

The executives allegedly “debuted content created for Disney+ initially on a legacy platform in order to shift marketing and production costs onto that platform,” according to the plaintiff, the Local 272 Labor-Management Pension Fund.

Chapek’s reorganization “represented a dramatic departure from Disney’s historical reporting structure” and caused controversy within the company because it redirected power and control from creative content executives to Chapek’s lieutenant Kareem Daniel, the pension fund alleges. Daniel is among the defendants.

“We are aware of the complaint and intend to defend vigorously against it in court,” Disney said in an emailed response to a request for comment.

Chapek was later replaced by longtime previous CEO Robert Iger. Iger’s first steps upon his return in November 2022 included calling for another reorganization and announcing Daniel’s departure.

Disney’s stock price suffered several jolts as information emerged about disappointing Disney+ subscriber growth and company financial results, the pension fund says.

The proposed class would include hundreds or thousands of members, the complaint estimates. The pension fund seeks damages and injunctive relief on its securities fraud claims.

Robbins Geller Rudman & Dowd LLP and Pitta LLP represent the fund and the proposed class.

The case is Local 272 Labor-Mgmt. Pension Fund v. The Walt Disney Co., C.D. Cal., No. 2:23-cv-03661, complaint filed 5/12/23.