A former senior financial analyst at The Walt Disney Company has filed a lawsuit against the company alleging that it manipulated revenue reports to inflate stock prices and obscure the impact of the Covid-19 pandemic. The lawsuit, filed in Los Angeles Superior Court, names former CEO Bob Chapek and other top executives among the accused.
David Daniel, who worked at Disney for 18 years, claims that the company inflated its revenue figures over several years and made misleading statements about Disney+. He is alleging that Disney engaged in a fraudulent scheme designed to conceal the true extent of the losses incurred by Disney+ and to create the impression of sustainable subscriber growth and profitability.
The lawsuit represents an attempted class action, but is somewhat unique in naming specific executives. Disney said in a statement that it is aware of the complaint and intends to defend against it vigorously.
The allegations are not confined to Daniel’s lawsuit. Another group of shareholders has accused Chapek and CFO Christine McCarthy of misreporting Disney+ subscriber targets, misappropriating marketing budgets, and inflating subscription metrics using discounts, free trials, and promotional memberships. The shareholders claim that these practices were intended to hide the true costs of building Disney’s content library and to boost the stock price.
According to the lawsuit, Disney executives moved Disney+ originals and marketing budgets to legacy platforms like the Disney Channel, while using the newly created Disney Media and Entertainment Distribution to shift costs from Disney+ to traditional deployment. The shareholders allege that this shifting scheme obscured a drop in subscriptions, losses, and cost overruns.
The lawsuit furthermore accuses Disney of misleading investors about the performance of Disney+, concealing its true costs, and making distribution decisions that were not based on consumer preferences. Disney is said to have missed revenue targets for both Disney+ and Hulu, and to be facing decelerating subscriber growth. The company lost at least four million subscribers in the past quarter alone.
The lawsuit comes after Disney was hit with a class-action lawsuit alleging that it deceived investors with fraudulent statements about the growth and profitability prospects of Disney+. The suit also alleges that executive chairman Bob Chapek called for a pivot to streaming to prioritize Disney+ over other businesses and that he and his lieutenant Kareem Daniel misled investors about subscriber growth targets.
Despite the legal battles, former Walt Disney World executive vice president of operations Lee Cockerell told Yahoo Finance that the fight with Governor Ron DeSantis is unlikely to have any impact on attendance. DeSantis and Disney are currently embroiled in a dispute over the “Don’t Say Gay” law that prohibits instruction on sexual orientation and gender identity in kindergarten through third grade. Chapek condemned the law at Disney’s annual shareholder meeting in 2022, prompting DeSantis to respond with further restrictions and inspections for Disney.
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