Disney is facing a lawsuit from one of its investors that claims the media giant misled shareholders about the success of its Disney+ streaming service by employing deceptive accounting methods.
Stourbridge Investments filed the lawsuit, obtained by Deadline, which says Disney breached its fiduciary duties by issuing “false and misleading statements and/or omitting material information in the Company’s public filings and proxy statements from approximately December 10, 2020, to the present.”
The lawsuit marks the latest twist in the saga of Disney+. It was once seen as an early victor in the streaming wars, having drawn 74 million subscribers in its first year and seen as a growth engine for Disney. But more recent data shows the company’s strategy of going after consumers directly has proven costly. The company’s streaming strategy, which includes Disney+, Hulu and ESPN+, lost more than half a billion dollars in the fiscal third quarter, which is an improvement over the $1.06 billion it lost a year earlier.
CEO Bob Iger said he is hoping for its streaming strategies – in which Disney+, with its collection of original Marvel and Star Wars projects, is the most expensive – to turn a profit by the end of fiscal 2024.
The 63-page lawsuit filed in the U.S. District Court of Delaware names Iger, former CEO Bob Chapek, former CFO Christine McCarthy, former Disney Media & Entertainment Distribution chairman Kareem Daniel, and 10 current and former board members as defendants.
Stourbridge Investments alleges that Chapek, Daniel and McCarthy aired shows considered to be Disney+ originals on legacy outlets like Disney Channel and then stuck those outlets with the marketing and production bill. These alleged actions made it look like Disney+ was financially performing better than it truly was.
“To conceal these adverse facts, defendants engaged in a fraudulent scheme designed to hide the extent of Disney+ losses and to make the growth trajectory of Disney+ subscribers appear sustainable and 2024 Disney+ targets appear achievable when they were not,” the lawsuit said.
Disney wasn’t immediately available for comment.
Iger picked Chapek to replace him as CEO in 2020, but business as usual derailed as COVID-19 shut down the US economy and hung a cloud over the new executive’s tenure. After suspending dividends in May 2020, the company reported its first quarterly loss in 19 years and first annual loss in 40 years in the fall.
The company reorganized to focus on Disney+ and its direct-to-consumer strategy, but the decision was controversial because it centralized power into the Disney Media and Entertainment Distribution (DMED) group, led by Daniel. DMED then directly oversaw business aspects like profit and loss management, sales and advertising, as well as Disney’s content strategy decisions.
DMED was also in charge of deciding what platforms Disney content would be released on. DMED shifted costs to make it look like Disney+’s growth trajectory and goal of amassing 230-260 million paid subscribers by the fiscal end of 2024, the lawsuit alleged.
The Wrap reported that Disney was sued this summer by investors making similar claims around streaming costs, as well as a suit filed by TSG Entertainment alleging Disney owes the company millions of dollars from film investments.