Disney has been hit again with another lawsuit from investors over the alleged sleight of hand accounting the company used to hide streaming losses.
And once again, some big names, Bobs past and present, are being spotlighted.
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“Plaintiff brings this action derivatively for the benefit of Nominal Defendant Disney against certain of the Company’s current executive officers and directors aiming to rectify the Defendants’ violations of the Exchange Act and breaches of fiduciary duties for issuing false and misleading statements and/or omitting material information in the Company’s public filings and proxy statements from approximately December 10, 2020 to the present,” says Stourbridge Investments in the August 23 filing over what it calls “materially misleading statements and/or omissions” the company and top executives made over the true financial state of affairs of Disney+ (read the Disney investors lawsuit here).
Though Stourbridge says it is bringing the action on behalf of Disney, the company itself is named in the complaint along with past and present CEO Bob Iger, axed CEO Bob Chapek, former CFO Christine McCarthy, ex-Disney Media & Entertainment Distribution chairman (and Chapek right-hand man) Kareem Daniels and more top level execs.
“To conceal these adverse facts, defendants engaged in a fraudulent scheme designed to hide the extent of Disney+ losses and to make the growth trajectory of Disney+ subscribers appear sustainable and 2024 Disney+ targets appear achievable when they were not,” the New Jersey-based Mouse House shareholder claims, as others have in previous lawsuit. “Specifically, defendants used the newly created DMED to inappropriately shift costs out of the Disney+ platform and onto legacy platforms,” Stourbridge states in the jury seeking complaint via its Wilmington, DE and Hewlett, NY lawyers.
In many ways, none of this is new news, and there have already been at least two previous suits in the same vein.
Spurred on by the pursuit of subscriptions over profits, the shifting of streaming costs and losses during Chapek’s pandemic-plagued reign eventually was a part of the coup d’état that McCarthy sparked in late November 2022. That move by the respected and now exited CFO saw one Bob out in a sudden Sunday night purge by the board and another Bob return to his old role as top Disney dog. Iger was supposed to only stick around around a couple of years to pick yet another successor, but the CEO’s contract was extended by the board in July until 2026.
Disney stock, which recently sank to a 9-year low, gained a fraction today to close at $84.39. Investors have taken a wait-and-see approach to the company’s shares largely because of the strategic gyrations between the Chapek and Iger regimes. During the months since Iger’s second stint as CEO began, the exec has dismantled many of the initiatives put in place by Chapek, including a surge of spending on streaming content and a centralized distribution structure.
Not that any of that means much to Stourbridge it seems, even nearly a year later. Stymied to some degree by the writers and actors strikes, Iger’s multi-billion-dollar cost cutting, the pink slipping of 7,000 employees and reorganization this year doesn’t appear to have helped get the company back on an even keel.
In the company’s most recent quarterly results, streaming losses moderated to $512 million, and the company beat Wall Street forecasts on the top and bottom line. Disney has maintained it will still hit its projection to turn a profit in streaming by 2024, though some analysts and industry observers have expressed doubt. Iger acknowledged a “challenging environment in the near term,” with the company’s rebuilding efforts complicated by the ongoing writers and actors strikes.
Among the damages, restitution and other relief Stourbridge is seeking, the company has some very specific instructions for the Disney board and execs:
Directing Disney and the Individual Defendants to take all necessary actions to reform and improve its corporate governance and internal procedures to comply with applicable laws and to protect Disney and its shareholders from a repeat of the damaging events described herein, including, but not limited to, putting forward for shareholder vote …resolutions for amendments to the Company’s By-Laws or Articles of Incorporation
Disney did not respond to a request from Deadline on this latest lawsuit. If and when it does have something to say, this post will be updated.
Dade Hayes contributed to this report.
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