Disney investors are suing the company for hiding the true costs of operating its Disney+ streaming platform.
The news comes as a turbulent 17 months has resulted in Disney's stock price hitting a nine-year low.
Shareholders are accusing Disney of lying about the extent of its losses to hit lofty subscriber growth targets, and in claiming Disney+ was on track to achieve profitability by the end of 2024, according to The Hollywood Reporter.
The complaint, filed Aug. 23 in California federal court, details a scheme to "inappropriately shift costs" by debuting content created for Disney+ on legacy platforms to move marketing and production costs, the Reporter said.
The lawsuit names Disney's former CEO Robert Chapek, current CEO Bob Iger, former CFO Christine McCarthy and several other current and former executives as defendants.
The suit claims company executives hid the expense and difficulty of maintaining subscriber growth as it suffered "staggering costs" to create content.
A charge is that in an effort to hide losses, executives decided to air "The Mysterious Benedict Society" and "Doogie Kameāloha, M.D.," which supposedly were to be Disney+ originals, on the Disney Channel to make the streaming service appear more successful than it actually was.
Chapek repeatedly had said Disney+ would be profitable by the end of 2024 — a forecast that represented an "astounding three-fold increase from prior estimates without any degradation in expected profitability for the segment," according to the lawsuit.
Disney management "materially misrepresented" Disney+'s financial future when it predicted three years ago it expected the service to turn a profit and have 230 to 260 million subscribers by 2024, the suit argues.
Disney+ had 146 million subscribers as of the end of June, when Disney reported a $512 million loss in its total streaming unit, Forbes reported.
"The Company also reported a decline in its average revenue per Disney+ subscriber, as more customers subscribed through a discounted bundle with the Company's other services," the complaint states. "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."
After the COVID-19 pandemic forced Disney to close theme parks, resorts and cruise lines, and with movie theaters also closed, the company prioritized streaming. Chapek then decided to "go all in" on the platform, the Reporter said.
The latest complaint is at least the third taking issue with the company's efforts to boost subscriptions for its streaming platform.
Charlie McCarthy ✉
Charlie McCarthy, a writer/editor at Newsmax, has nearly 40 years of experience covering news, sports, and politics.
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