Another derivative suit filed by Stourbridge Investments on August 23, 2023, alleges that current and former executives at The Walt Disney Company “repeatedly misled investors about the success” of the Disney+ streaming platform, something that contributed to “significant losses and damages” on behalf of the plaintiff.
Bob Iger, Bob Chapek Listed as Defendants in New Derivative Suit
Current Disney CEO Bob Iger, former CEO Bob Chapek, and former CFO Christine McCarthy are just a few of the executives listed as defendants in the complaint filed in The United States District Court for the District of Delaware. The Walt Disney Company itself is listed as both a nominal defendant and as a plaintiff, alongside Stourbridge Investments, in the suit; the Legal Information Institute service at Cornell Law School defines a derivative suit as “a lawsuit brought on by a shareholder . . . on behalf of the corporation against the corporation’s directors, officers, or other third parties who breach their duties.”
At the crux of the lawsuit is The Walt Disney Company’s “major reorganization” overseen by then-new Disney CEO Bob Chapek in October 2020. According to the 63-page suit that can be read in its entirety here, the restructure was done “to further accelerate [Disney’s] focus on a [direct-to-consumer] strategy, in light of the rapid success of Disney+,” the company’s streaming service that launched in November 2019.
As is noted in the lawsuit, that restructuring saw Disney’s reporting segments dwindle from four entities — Media Networks, Parks, Experiences, and Products, Studio Entertainment, and Direct-to-Consumer & International — to two — Disney Parks, Experiences, and Products (DPEP), and Disney Media and Entertainment and Distribution (DMED). Longtime Disney employee Kareem Daniel (also listed as a defendant) was named Chairman of DMED, a move that the lawsuit alleges gave “Daniel and Chapek near complete control over [Disney’s] strategic decisions around content.”
The lawsuit states that DMED “became responsible for the monetization of all Disney content globally,” something that allowed Disney to “inappropriately shift costs out of the Disney+ platform and onto legacy platforms.” The plaintiff argues that this created a false image of the platform’s success and sustainability, misleading and harming investors.
During the Relevant Period (approximately December 10, 2020 to the present), Defendants repeatedly mislead 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 . . . As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of Disney’s securities, Plantiff and the Company have suffered significant losses and damages.”
Stourbridge Investments LLC Complaint
The document concludes with the plaintiff’s demand for trial by jury. Disney had no comment when asked by Deadline.
Disney Financial Woes
This suit comes in the wake of Disney’s stock closing at a nine-year low of $82.47 per share on August 24. The stock price has grown marginally since (closing at $84.40 on August 29) but is still a far cry from the $100 per share price the stock blossomed to after Iger returned as CEO in November 2022.
During Disney’s Q3 2023 earnings call, it was shared that the company’s revenues for their direct-to-consumer products (the aforementioned Disney+ along with Hulu and ESPN+) increased by nine percent to $5.5 billion in the quarter, though their operating loss nearly broke even. During the call, Iger admitted that Disney+ overachieved out of the gate. According to Deadline, Disney remains confident that it will still turn a profit with its streaming services by 2024.
A lawsuit with a similar list of defendants and allegations to the one filed by Stourbridge Investments last week was filed in the U.S. District Court for the Central District of California in May 2023.
How do you feel about this most recent lawsuit filed against Disney? Let us know in the comments.