Disney, together with its subsidiaries, engages in the film and episodic television content production and distribution business. Disney offers direct-to-consumer (“DTC”) streaming service through Disney+.
As the Disney class action lawsuit alleges, defendants throughout the Class Period made false and/or misleading statements and/or failed to disclose that: (i) Disney+ was suffering decelerating subscriber growth, losses, and cost overruns; (ii) the true costs incurred in connection with Disney+ had been concealed by Disney executives by debuting certain content intended for Disney+ initially on Disney’s legacy distribution channels and then making the shows available on Disney+ thereafter to improperly shift costs out of the Disney+ segment; (iii) Disney had made platform distribution decisions based not on consumer preference, consumer behavior, or the desire to maximize the size of the audience for the content as represented, but based on the desire to hide the full costs of building Disney+’s content library; and (iv) Disney was not on track to achieve even the reduced 2024 Disney+ paid global subscriber and profitability targets, such targets were not achievable, and such estimates lacked a reasonable basis in fact.
On November 8, 2022, Disney reported financial results for the fourth quarter and fiscal year end October 1, 2022, missing analyst estimates by wide margins on both the top and bottom lines. Specifically, Disney’s DTC segment reported a monumental operating loss of $1.47 billion compared to a $630 million loss in the same quarter the prior year while revenue in the segment increased just 8% to $4.9 billion. Disney also reported a decline in its average revenue per Disney+ subscriber, as more customers subscribed through a discounted bundle with Disney’s other services. Notably, the bundled offering made up about 40% of domestic subscribers, confirming that Disney was relying on short-term promotional efforts to boost subscriber growth while impairing Disney +’s long-term profitability. On this news, the price of Disney common stock declined more than 13%.