A lawsuit has been filed in a California federal court against Disney, alleging the Walt Disney Company misled investors over its streaming service’s growth and profitability targets.
The lawsuit, filed on May 12, claims that Disney engaged in fraudulent activities to conceal the true costs of Disney+ and to make its forecasts of profitability by 2024 appear credible.
The lawsuit specifically targets former CEO Bob Chapek’s alleged “cost-shifting scheme,” in which certain shows intended to be Disney+ originals were first aired on its broadcast networks. This strategy was purportedly employed to mask the platform’s decelerating subscriber growth, losses, and cost overruns.
The legal action outlines Disney’s strategic shift toward prioritising streaming during the pandemic, as its theme parks, resorts, and cinemas faced closures. Disney+ subscriptions surged over the period, prompting Chapek to commit to a major reorganisation of the company’s media and entertainment operations.
Investors argue that the reorganisation departed from Disney’s historical reporting structure and concentrated power in a new reporting group, diminishing the influence of creative content-focused executives. Chapek and Kareem Daniel, who run the Disney Media and Entertainment Distribution division, are accused of repeatedly misleading investors from December 2020 to November 2022 by concealing the actual costs of Disney+ and the challenges of sustaining subscriber growth. They are also accused of making overly optimistic claims, including the projection of 230 to 260 million paid global subscribers for Disney+ by the end of 2024.
The complaint takes issue with Chapek’s statements in December 2020, where he celebrated the success of Disney+ and emphasised the company’s shift toward a direct-to-consumer (DTC) model. Chapek also discussed how the new distribution and commercialization team would empower creative teams to produce high-quality content. The lawsuit claims that these statements were meant to mislead investors.
In November 2022, Disney reported significant misses on analyst estimates for revenue, sales, and earnings, with its direct-to-consumer arm reporting an operating loss of $1.47 billion. Disney’s stock subsequently dropped more than 13%.
After Bob Iger returned to lead the company, he emphasised the importance of returning power to creative executives, including distribution decisions. The lawsuit uses this statement as evidence that Chapek’s previous comments regarding the reorganization were intended to mislead investors.
The complaint names Bob Chapek, Kareem Daniel, and CFO Christine McCarthy as defendants. Disney has issued a statement acknowledging the lawsuit and expressing its intent to vigorously defend against it in court.