A new shadow on the board for Disney. One of its shareholders, the Local 272 Labor Management pension fund, filed a complaint on May 12 against Disney in the Central District Court of California. The complaint is also directed at Bob Chapek, the former chief executive, as well as Christine McCarthy, the group’s chief financial officer since 2015.
Between December 10, 2020 and November 8, 2022, the latter are accused of having “repeatedly misled investors about the success of the Disney+ platform by hiding the real costs of the platform, the expenses, the difficulty to maintain solid growth in the subscriber base and affirm that the platform is on track to achieve profitability and 230-260 million paying subscribers worldwide by the end of fiscal year 2024 ”, summarizes the complaint.
This lawsuit seeks an injunction to bring a class action lawsuit on behalf of all Disney stockholders for the relevant period.
Attractive introductory price to attract subscribers
The Disney+ streaming platform launched in the United States in 2019, then gradually worldwide throughout 2020. This launch was accompanied by a major internal reorganization by merging its media and entertainment divisions to emphasize its Disney+, Hulu, ESPN+ platforms and Star…
The group is accused of having made overly optimistic growth projections when its “initial number of subscribers had been temporarily and unsustainably boosted by a low introductory price of $6.99 per month.”
These rates were accompanied by a “multitude of additional short-term and low-cost promotions”, together with “an almost captive audience of consumers who were confined to their homes due to the restrictions linked to Covid-19”, laments the shareholder.
“Amazing Costs” for Content Creation
The complaint also notes the “massive costs” Disney incurred to “create the content necessary to attract such a large number of subscribers, in the highly competitive streaming war then being waged between Disney’s many competitors, such as Netflix.” , Apple TV +, Amazon Prime, Paramount +, HBO Max, YouTube and Peacock”.
While some shows were supposed to be destined for Disney+ upon launch, some of them were released on the group’s other traditional channels first, according to the complaint. The objective: to transfer the costs of production and marketing to reduce those destined exclusively for Disney +.
Drop in the number of subscribers
Rapid growth in Disney+ subscribers propelled Disney’s share price from $85 in March 2020 to $197 in March 2021. But the company saw its subscriber base decline for a second straight quarter in early May, which reduced the stock price to $93 now. It now has nearly 158 million subscribers worldwide, compared to Netflix’s more than 230 million.
Consequence: the shareholder considers that he has suffered economic damage, accusing Disney of having inflated the price of its shares by communicating false information.
Source: BFM TV
