NYC Teamsters Pension Sues Disney Over Streaming Service Losses

A New York City-based Teamsters pension fund is suing the Walt Disney Co. for allegedly failing to disclose that the media giant’s streaming service was suffering losses, cost overruns and slowing subscriber growth, among other issues.

According to the complaint, led by the Teamsters Local 272 Labor-Management Pension Fund, Disney misled investors by hiding the true costs of its Disney+ platform, while claiming it was on pace to have between 230 million and 260 million subscribers—and be profitable—by the end of fiscal year 2024.

Disney “made these representations notwithstanding the fact that initial subscriber numbers for Disney+ had been boosted temporarily and unsustainably by a low launch price of $6.99 per month, a bevy of additional short-term, low-cost promotions and a near-captive audience of consumers who were homebound due to COVID-19 restrictions,” the complaint states.

In response to the allegations, a Disney spokesperson said in an emailed statement that “we are aware of the complaint and intend to defend vigorously against it in court.”

The lawsuit also alleges Disney was taking on “staggering costs” to create the content needed to attract and maintain subscribers in the face of competition from the likes of Netflix, Apple TV+, Amazon Prime, HBO Max and Peacock. It also alleges that “Disney+ was never on track to achieve the 2024 profitability and subscriber figures provided to investors and such estimates lacked a reasonable basis in fact.”

The class period for the lawsuit extends from December 10, 2020, through November 8, 2022. The complaint names as defendants then-CEO Bob Chapek, Chief Financial Officer Christine McCarthy and Disney Media & Entertainment Distribution Chairman Kareem Daniel.

The complaint accuses Disney of intentionally concealing adverse facts by engaging 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 complaint also claims that hiding the costs incurred from Disney+ was a major reason behind Chapek’s decision to reorganize the company’s media and entertainment operations in October 2020. The company reorganized from four reporting segments to two: Disney Media and Entertainment Distribution and Disney Parks, Experiences and Products.

Disney allegedly used the newly created Media and Entertainment Distribution division to “inappropriately shift costs out of the Disney+ platform and onto legacy platforms,” the complaint said. “DMED, under the direction of Chapek and Daniel and with the knowledge of McCarthy, debuted content created for Disney+ initially on a legacy platform in order to shift marketing and production costs onto that platform.”

The lawsuit alleges Disney and the executives “implemented this scheme almost from the beginning of the October 2020 reorganization, indicating the intent to shift costs in this manner was a motivating factor behind the reorganization.”