WOKE BOOM - Disney ‘Repeatedly Misled Investors’ About Streaming Losses, Lawsuit Alleges

[Red Baron]

This new lawsuit cuts directly to specific allegations of illegal financial conduct by Disney Corp. Specific corporate officers are named and specific unlawful behavior is detailed.

If Disney does not find a way to settle this out of court all of their little financial secrets will be revealed in open court.

I doubt investors will stick around once their books have been opened.

Fair Use Cited
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Disney ‘Repeatedly Misled Investors’ About Streaming Losses, Lawsuit Alleges

Derek Saul - Forbes Staff
Aug 29, 2023,05:00pm EDT

TOPLINE Disney leadership faces a fresh lawsuit from shareholders accusing management of knowingly deceiving investors about the financial health of its core Disney+ streaming service, as frustrations hit a fever pitch with the stock wobbling near a nine-year low.

Corporate headquarters for entertainment companies in LA

KEY FACTS

Beginning in December 2020, Disney’s top executives “repeatedly misled investors” about the extent of Disney+’s losses, according to the complaint filed Wednesday by New Jersey-based Stourbridge Investments, first reported on by the Hollywood Reporter.

The suit names Diseny’s former and current CEOs Robert Chapek and Bob Iger, its former CFO Christine McCarthy and several other current and former executives as defendants.

The firm’s “wrongful acts and omissions” led to the “precipitous decline in the market value” of Disney shares, the lawsuit alleges.

The company’s brass “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.

The lawsuit also alleged Disney hid “the true costs of the platform” by shifting shows’ marketing and production costs from Disney+ to the company’s legacy TV networks, in some cases by debuting shows on linear TV channels even if they were meant to be streaming originals.

Disney did not immediately respond to Forbes’ request for comment, but the company told the Hollywood Reporter it planned to “defend [itself] vigorously” against a similar shareholder suit brought forward in May.

SURPRISING FACT

Disney stock’s 45% decline since December 2020 makes it the 15th-worst performing stock currently on the S&P 500, per FactSet data, by far trailing the index’s 5% loss over the period.

BIG NUMBER

$3.7 billion. That’s how much of a loss Disney reported in the 12-month period ending June 30 in its direct-to-consumer media segment encompassing its Disney+, ESPN+ and Hulu streaming services.

KEY BACKGROUND

The Disney+ suit is the latest headache Disney leadership faces, having staved off a proxy fight from billionaire activist investor Nelson Peltz earlier this year. Among Peltz’s misgivings was an assertion that Disney’s “flawed” streaming strategy and “lack of overall cost discipline” resulted in a subpar return on investment for shareholders. Disney, which now trades at its lowest level since 2014, has posted a 54.5% return over the last 10 years when accounting for dividend payments, compared to a median return of 187% for the 468 current S&P companies who were publicly traded for the entirety of the decade, according to FactSet data.

Disney ‘Repeatedly Misled Investors’ About Streaming Losses, Lawsuit Alleges

The slumping Hollywood titan faces yet another challenge from investors frustrated with the stock’s underperformance.

www.forbes.com

 

[2dollarbill]

Good!

 

[Red Baron]

IMO "Hollywood Accounting" finally caught up with the entire Disney monolith. Disney was tying to hide the streaming losses and costs in amongst it's other operations like linear TV, theatrical movies, parks and other operations.

That sleight of hand can work only if you actually have a portion of your business that is profitable and is able to hide the added costs of other operations.

Disney is in real trouble now because their entire operation is in financial decline and there is no longer any place to hide the losses.

Fair Use Cited
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Investors Sue Disney Over Alleged Chapek Era “Cost-Shifting Scheme” to Hide Streaming Losses

The suit takes aim at former CEO Bob Chapek's lofty subscriber growth and profitability targets for Disney+. The entertainment giant faces a host of litigation dealing with efforts to boost subscriptions for its streaming service.

BY WINSTON CHO
AUGUST 29, 2023 11:37AM

As Disney stock hovers at its lowest levels in nearly a decade, the company was hit with another lawsuit alleging it misled investors about the success of Disney+ by concealing the true costs of operating the platform.

Disney is being accused of lying about the extent of its losses to hit lofty subscriber growth targets and claiming that the streaming service was on track to achieve profitability by the end of 2024. Investors detail a scheme to “inappropriately shift costs” by debuting content created for Disney+ on legacy platforms to move marketing and production costs.

The complaint filed on Aug. 23 in California federal court is at least the third taking issue with the company’s efforts to boost subscriptions for its streaming platform. It faces an identical investor suit over an alleged “cost-shifting scheme” in its streaming division and claims that it obstructed a deal between TSG Entertainment Finance and 20th Century Studios, which Disney owns, to “prop up” Disney+ and inflate its stock price.

The suit claims that company executives hid the expense and difficulty of maintaining subscriber growth as it suffered “staggering costs” to create content. In an effort to hide losses, the complaint claims, former chief executive Bob Chapek, his lieutenant Kareem Daniel and former CFO Christine McCarthy aired The Mysterious Benedict Society and Doogie Kameāloha, M.D. — which were supposed to be Disney+ originals — on the Disney Channel to make the streaming service appear more successful than it actually was.

Investors take issue with statements from the executives touting gains. For example, in December 2020 Chapek said, “Disney+ has exceeded our wildest expectations with 86.8 million subscribers as of December 2” and that the “success” of the platform has “bolstered our confidence in our continued acceleration towards a DTC-first business model.” He repeatedly stated that it would be profitable by the end of 2024. This forecast represented an “astounding three-fold increase from prior estimates without any degradation in expected profitability for the segment,” the suit says.

After acknowledging that subscriber growth had slowed in 2021, Disney reported last year that it missed analyst estimates by wide margins on revenue, sales and earnings. In Q4 2022, the company’s direct-to-consumer arm, which includes Disney+, ESPN+, Hulu and Hotstar, reported an operating loss of $1.47 billion — up from a $630 million loss in the same quarter the year prior. Disney’s stock plummeted by more than 13 percent at the time.

“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.”

The suit also details Disney’s pivot to prioritizing streaming amid the pandemic. While the company’s theme parks, resorts and cruise lines were forced to close as movie theaters shuttered, subscriptions to Disney+ rapidly took off, according to the complaint. When the service launched in November 2019 before Chapek took over, Disney set an initial target of 60 million to 90 million subscribers by the end of 2024. But after Chapek assumed leadership, Disney+ experienced higher growth than originally anticipated, gaining over 50 million subscribers in its first five months and nearly 74 million subscribers in its first year.

Against this backdrop, Chapek decided to “go all in” on the platform, announcing a major reorganization of the company’s media and entertainment operations. Distribution and commercialization activities were centralized into the Disney Media and Entertainment Distribution (DMED) arm, which essentially became responsible for the monetization of all content globally, the suit says.

Investors say that the reorganization represented a “dramatic departure from Disney’s historical reporting structure and was hugely controversial within the Company because it took power away from creative content-focused executives and centralized it in a new reporting group” led by Daniel. Prior to this, Disney was organized into four reporting segments comprised of media networks, parks, studio entertainment and direct-to-consumer.

“With this new structure, Chapek removed budgetary and distribution control from the heads of Disney’s content groups (much to their dismay) and placed control in the hands of DMED’s new Chairman, defendant Daniel, who reported directly to his long-time mentor Chapek,” states the complaint, which notes that the duo “exerted near complete control over the Company’s strategic decisions around content.”

After Bob Iger, who was also named in the complaint, returned to lead the company, he made clear that an important component of restoring Disney’s success would be to return power back to creative executives, including distribution decisions. The suit points to the statement as evidence that Chapek’s comments on his reorganization were meant to mislead investors.

Disney didn’t immediately respond to a request for comment.

Investors Sue Disney Over Alleged Chapek Era “Cost-Shifting Scheme” to Hide Streaming Losses

The suit takes aim at former CEO Bob Chapek's lofty subscriber growth and profitability targets for Disney+. The entertainment giant faces a host of litigation dealing with efforts to boost subscriptions for its streaming service.

www.hollywoodreporter.com

 

[Griz3752]

At least it will be entertaining watching the Disney C-0Suite trying to throw each other under the bus over share value degradation and expense associated w/ Wokeism.

That's something the bulk of their product hasn't been for a long time.

 

[Wildweasel]

This video sums up the death of Disney pretty well. runtime 6:29

 

[Housecarl]

Though this should result in a house cleaning, in this day and age there's just as good of a chance that those brought in to replace this bunch might actually be found to be worse.

 

[Knoxville's Joker]

Though this should result in a house cleaning, in this day and age there's just as good of a chance that those brought in to replace this bunch might actually be found to be worse.

If they are worse, disney will get dismantled as a result eventually. You can not eat massive losses for long and not go bankrupt at some point.