Disney, Ex-CEO Bob Chapek, CFO Hit With Shareholder Suit Over Streaming Losses
To paraphrase Neil Young, Bob Chapek is gone from Disney but not forgotten.
A shareholder is suing the former CEO along with former executive Kareem Daniel, current CFO Christine McCarthy and the company itself alleging violations of securities law for misleading statements about Disney+ and the health of the streaming business.
More from Deadline
'Guardians' Gang Steals 'Book Club' Ladies' Purse Over Mother's Day Weekend: Best Second Weekend Hold For MCU Post Covid - Sunday Box Office Update
Disney Shares Fall On Mixed Quarter Amid Hulu & Succession Overhang; Wall Street Analysts Say Stock Undervalued
Filed on May 12, the suit by Local 272 Labor Management Pension Fund, filed in U.S. District Court for the Central District of California, seeks a lead plaintiff for a class action representing purchasers of Disney shares between December 10, 2020 and November 8, 2022, when the company dramatically missed earnings guidance and the stock took a major hit after an already bumpy year.
Seeking a jury trial, the dense complaint (read it here) alleges:
Defendants throughout the Class Period made false and/or misleading statements and/or failed to disclose that: (i) Disney+ was suffering decelerating subscriber growth, losses, and cost overruns; (ii) the true costs incurred in connection with Disney+ had been concealed by Disney executives by debuting certain content intended for Disney+ initially on Disney’s legacy distribution channels and then making the shows available on Disney+ thereafter to improperly shift costs out of the Disney+ segment; (iii) Disney had made platform distribution decisions based not on consumer preference, consumer behavior, or the desire to maximize the size of the audience for the content as represented, but based on the desire to hide the full costs of building Disney+’s content library; and (iv) Disney was not on track to achieve even the reduced 2024 Disney+ paid global subscriber and profitability targets, such targets were not achievable, and such estimates lacked a reasonable basis in fact.
Specifically, the 39-page filing cites a November 8 earnings miss by Disney in its quarterly financial results including “a monumental” operating loss of $1.47 billion for streaming. Disney also reported a decline in its average revenue per Disney+ subscriber.
Boom! The shares dropped — hence this action.
“We are aware of the complaint and intend to defend vigorously against it in court,” a Walt Disney spokesperson told Deadline today. Currently, the action from Local 272 seeks a judicial determination to become a class action, plus a slew of unspecified damages.
Attempted class action suits are filed frequently when share prices fall sharply and often they don’t advance. A specialized law firm brings the case on behalf of one or more stockholders, in this case seeking a larger shareholder to join as lead plaintiff, and others holders to adhere to the suit as well. A judge must approve class action status.
While similar in so many ways to so many of these shareholder suits, this case is somewhat notable for calling out high profile executives and the streaming red ink that’s been the talk of the entertainment industry for the past year, and continues to grab headlines.
Under siege for months, Chapek’s abrupt departure was announced November 20, a Sunday, with former longtime CEO Bob Iger returning immediately for an encore. Kareem Daniel, whom Chapek had put atop a new division called Media & Entertainment Distribution, was out the next day. CFO McCarthy, said to have agitated for Chapek’s removal, spans both regimes and is seen in some circles as possible CEO material herself.
Disney’a streaming situation is not unique.
Having put a lot of their chips on going digital online, the rest of the industry has struggled with a costly pivot to streaming as linear television viewing continues to decline. Hollywood’s real rulers on Wall Street at first rewarded subscriber growth but has since shifted its focus to streaming profitability, as have the companies which are cutting back on content spending.
Disney reported last week that streaming losses declined in the March quarter.
Best of Deadline
Cannes Film Festival 2023: Film Premieres And Parties Gallery
TV Shows Affected By WGA Strike: 'You Bet Your Life', 'The Chi', 'FBI: Most Wanted' & More - Updated List
TV Cancellations Photo Gallery: Series Ending In 2023 & Beyond
Sign up for Deadline's Newsletter. For the latest news, follow us on Facebook, Twitter, and Instagram.