Facing litigation on multiple fronts, the Walt Disney Company has been served with another lawsuit from investors claiming that the company under former CEO Bob Chapek concealed the true costs of producing films and TV shows for its Disney+ streaming service.
In the 63-page lawsuit filed in the U.S. District Court of Delaware and obtained by TheWrap, Stourbridge Investments LLC alleges that Chapek, along with his lieutenant Kareem Daniel and former CFO Christine McCarthy, initially aired shows greenlit as Disney+ originals on legacy outlets like Disney Channel and then shifted the marketing and production costs of those shows onto those outlets “as part of a scheme to make Disney+’s financial performance appear more successful than it really was.”
Among the shows the plaintiffs cite as part of this strategy were “The Mysterious Benedict Society,” which was pulled from Disney+ this past May, and “Doogie Kameāloha, M.D.,” which ran for two seasons on the service and was canceled Friday.
Through this strategy, the plaintiffs claim that Chapek and his leadership team “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 and 230-260 million paid global subscribers by the end of fiscal year 2024.”
The complaint also notes that Chapek made the decision to reorganize all of Disney’s media and entertainment into a single division led by Daniel as part of efforts to make direct-to-consumer services like Disney+ the core of the company.
The plaintiffs said that this reorganization was a “dramatic departure from Disney’s historical reporting structure and was hugely controversial within the company because it took power away from creative content-focused executives and centralized it in a new reporting group.”
That current Disney CEO Bob Iger reversed Chapek’s restructuring following his return to the company last November is seen by the plaintiffs as proof that the former CEO’s strategy misled investors about how much Disney was spending on streaming versus how much revenue it was receiving from bundle deals it was offering to customers with Hulu and ESPN+.
“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 lawsuit read, citing the company’s reported DTC operating loss of $1.47 billion in Q3 2022 shortly before Chapek was ousted from Disney.
Disney’s stock price currently stands at $84.39 per share, the lowest seen for the company since October 2014. The company faces a similar investor lawsuit regarding its streaming costs filed earlier this summer as well as one filed by TSG Entertainment claiming that Disney owes the company tens if not hundreds of millions of dollars from its investments in films like “Avatar: The Way of Water.”
TheWrap has reached out to Disney for comment.
Pamela Chelin contributed to this report.