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This morning’s third quarter earnings report revealed that Disney’s combined streaming services are finally turning a profit but the Mouse House’s legal costs are still pretty pricey too.
Specifically, $65 million pricey.
“In the current quarter, the Company recorded a charge of $65 million related to a legal ruling,” Disney said in its just released Q3 earnings summary. “In the prior-year quarter, the Company recorded a charge of $101 million related to a legal ruling, largely offset by a $90 million gain on its investment in DraftKings, Inc. (DraftKings Gain), which was sold in the prior-year quarter,” Disney went on to state.
Disney did not respond to request for comment and clarification on what the Q3 2024 “legal ruling” was related to or who the $65 million was paid out to. If the company does provide information, this post will be updated.
Among the many legal actions Disney has recently been involved in, one clue may lie in the settlement deal the Mouse House struck with TSG Entertainment Finance in late January.
In a sometimes-strident complaint initially filed in the summer of 2023, the deep pocketed backer of the Oscar-winners The Shape of Water and JoJo Rabbit, plus Deadpool, Avatar: The Way of Water and many more claims it was the victim of some shifty Hollywood accounting. TSG alleged it was screwed out of “at least $54.5 million” in Defined Gross Receipts “across the full Qualifying Picture slate” in its Fox deal once Disney fully acquired the previously Rupert Murdoch-owned studio in 2019.
Accusations of “rampant self-dealing” and several squabbling lawyers later, a Disney spokesperson tersely said, “the matter has been resolved,” on January 16.
Could that settlement be the heart of the $65 million Disney paid out last quarter? Maybe. Maybe not.
Going down another financial rabbit hole, a Securities and Exchange Commission filing for the quarter and the nine months ending on July 1, 2023 references the $101 million from last year as an “unfavorable legal ruling.” It goes on to document the $101 million as “the value (monetary amount) of the award the plaintiff seeks in the legal matter.”
Again, no solid info on who the dispute was with, and who was paid.
It should be noted that such legal line-item expenses are not exclusive to Disney, today just happens to be the Bob Iger-led company’s turn in the earnings spotlight. In fact, such legal payouts are not uncommon in corporate media earnings reports or SEC filings in America’s litigious culture.
For instance, just as subscribers were starting to be able to watch movies on their computers, a $4.1 million win in a patent suit settlement delivered a big boost to a little DVD rental company named Netflix back in 2007. On the other hand, a confidential settlement Netflix made in early September 2022 out of a $5 million The Queen’s Gambit defamation suit from Cold War era chess icon Nona Gaprindashvili never seemed to see the light of day in the company’s reports that year.
In its 2022 end of fiscal filing to the SEC, Netflix merely hinted at the proceedings underneath in boilerplate legal language.
From time to time, in the normal course of its operations, the Company is subject to litigation matters and claims, including claims relating to employee relations, business practices and patent infringement. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company’s view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company’s operations or its financial position, liquidity or results of operations.
The Company is involved in litigation matters not listed herein but does not consider the matters to be material either individually or in the aggregate at this time. The Company’s view of the matters not listed may change in the future as the litigation and events related thereto unfold.
Some companies are more explicit.
Several years ago, as sexual harassment claims and more scandals raged at Fox News, a section of a 2017 21st Century Fox SEC submitted Quarterly Report said: “Other for the three and nine months ended March 31, 2017 included approximately $10 million and $45 million, respectively, of costs related to settlements of pending and potential litigations following the July 2016 resignation of the Chairman and CEO of Fox News Channel after a public complaint was filed containing allegations of sexual harassment.”
The total figure for the ‘Other’ category over the nine months that ended at the end of March that year at the then Rupert Murdoch-owned company was $71 million.
Either way you want to cut it, today’s revelation of a $65 million check being written by Disney isn’t a good look on the books. It’s a bad look in this time of layoffs, cost cutting and sluggish production. It especially doesn’t look good when your streaming trio of Disney+, Hulu and ESPN+ made just $47 million in direct-to-consumer operating income this past quarter.
