Ex-disney chief accused of fraud in lawsuit over streaming losses
FORMER Disney chief executive Bob Chapek has been hit by a shareholder lawsuit over accusations that the US entertainment giant misled investors about streaming losses.
Mr Chapek, who was ousted from Disney in November, is among the executives accused of engaging in a fraudulent scheme designed to hide the extent of losses at Disney+ and make its growth targets appear achievable.
The class action suit, filed last week in California federal court, alleges that bosses employed a “cost-shifting scheme” by airing certain shows that were meant to be Disney+ originals on legacy TV networks such as the Disney Channel.
This meant that a significant portion of marketing and production costs for the shows could be diverted away from the streaming platform, the investors claim.
The lawsuit accuses Disney bosses of repeatedly misleading investors about the success of Disney+ by concealing the true cost of running the platform while claiming it was on track to achieve profitability and reach between 230m and 260m paid subscribers by the end of 2024. Alongside Mr Chapek, the suit names former executive Kareem Daniel and current chief financial officer Christine Mccarthy as defendants, as well as Disney itself.
It accuses them of either knowing or recklessly disregarding the fact that their statements were false and misleading and is seeking damages because of a decline in the company’s share price.
Documents filed as part of the legal battle outline Disney’s shift to streaming during the pandemic.
It states that Mr Chapek, who took over as chief executive in February 2020, decided to “go all in” on Disney+ as the media giant’s theme parks and cruises were shut down and cinemas were forced to close.
In October that year, the chief executive announced a major reorganisation of the group’s media and entertainment operations. The move sparked controversy at the time, as it took power away from creatives and placed it in the hands of a new division headed by Mr Daniel. According to the lawsuit, Mr Chapek and Mr Daniel “exerted near complete control over the company’s strategic decisions around content”.
However, Disney’s shares struggled under Mr Chapek’s tenure and the company became embroiled in a row with Florida governor Ron Desantis over the state’s so-called Don’t Say Gay laws.
In November, the company reported losses of $1.5bn in its streaming division, which also includes Hulu and ESPN+.
Mr Iger, who had been chief executive of Disney between 2005 and 2020, was parachuted back into the role just two weeks later. He vowed to reverse Mr Chapek’s changes by putting power back in the hands of creatives and dismissed Mr Daniel shortly after. He also announced plans to cut 7,000 jobs and strip out $5.5bn in costs.
But earlier this month Disney reported its second consecutive quarter of streaming losses, shedding 4m subscribers.
The investors pointed to this as further evidence that the company’s targets for 2024 had never been achievable.
A Disney spokesman said: “We are aware of the complaint and intend to defend vigorously against it in court.”