Walt Disney Co (NYSE: DIS) in March 2023, laid off over 300 staff members in Beijing, citing cost-saving measures. However, behind the scenes, there were additional motives.
Disney executives were anticipating pointed queries about data security in a scheduled meeting between CEO Bob Iger and Republican representative Mike Gallagher, who chairs a committee examining U.S. competition with China, the Wall Street Journal reported.
The Beijing team, experts in technology for personalizing Disney's streaming recommendations, had access to U.S. customer data.
Disney's legal team was apprehensive about this fact becoming a concern for the committee, despite such access being long-standing.
So, the layoffs reflect the ongoing complexity of Disney's relationship with China, a crucial market for Disney.
Concerns have grown in the U.S. about Chinese authorities' potential access to American user data due to regulations in China.
"Disney's decision to restructure and consolidate these operations was not motivated by data security vulnerability concerns," said a company spokesperson.
Iger holds immense credit for opening up the Chinese consumer market to Disney.
"Avengers: Endgame," raked in more than $600 million in China, making it the second-highest-grossing movie of all time.
China, an important market for Disney's consumer business, has also become an indispensable hub for its streaming business.
While Disney has stated that all U.S. streaming data is stored domestically, the Beijing team's work did involve access to some user information.
In the aftermath of the layoffs, some streaming functions encountered issues, with some services like Hulu experiencing disruptions.
This was partly because error alerts were directed to channels previously monitored by the now-laid-off Beijing team.
Disney's ties with China have experienced challenges. Recent instances include the Chinese government banning some of Disney's blockbuster movies and backlash for Disney filming parts of "Mulan" in Xinjiang, a region flagged for human rights abuses.
Gallagher has been an outspoken critic, stating that companies like Disney are increasingly cautious about negatively portraying the Chinese Communist Party.
Price Action: DIS shares are trading lower by 1.26% at $81.69 on the last check Friday.