Federal Judge Advances Lawsuit Against Disney for Misleading Investors
A federal judge has pushed forward a lawsuit against Disney from investors who claim they were deceived about the extent of the company’s losses related to its subscriber growth and profitability targets under former CEO Bob Chapek.
U.S. District Judge Consuelo Marshall denied Disney’s attempt to dismiss the lawsuit, stating that former executives may have engaged in deceptive conduct to make it appear that Disney’s streaming platform could reach Netflix-like scale.
The complaint alleged that CEO Bob Chapek aimed to conceal Disney+ costs and manipulate forecasts to make them seem profitable by 2024. The lawsuit detailed Disney’s shift to prioritize streaming during the pandemic, with Chapek increasing subscriber targets to 230 million by 2024.
The court agreed with investors that Chapek and other executives may have engaged in corporate maneuvering to achieve short-term subscriber growth and hide escalating costs. This included reorganizing Disney’s media operations to centralize control of content distribution and monetization.
Former Disney employees supported the allegations, describing pressure to meet unreasonable targets and a focus on producing a high volume of content under Chapek’s leadership. Content spending in 2021 rose significantly, with a large portion dedicated to Disney+.
Disney reported a significant quarterly operating loss in 2022, leading to Chapek’s ousting and Bob Iger’s return as CEO. The company maintains it warned investors about the risks and made changes when Iger returned.
The lawsuit also highlights promotions that drove subscription growth but reduced revenues per subscriber, impacting Disney’s business for years. Allegations of cost shifting and insider trading by executives have also been allowed to proceed.
The proposed class action seeks to represent investors who purchased Disney stock from December 2020 to May 2023. Disney’s stock price dropped during this period but has since seen a slight increase.
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