AT&T bought DirecTV for $49 billion. It's still paying a price for the deal

New York(CNN Business) Four years ago, AT&T purchased DirecTV for $49 billion, or $67.1 billion including debt. Now DirecTV is flailing badly enough that it is at the heart of an activist shareholder revolt against AT&T's business strategy.

Elliott Management, an activist hedge fund, released a letter to AT&T's board Monday in which it said that it has taken a 3.3% position in the company and wants to see changes. It specifically called out the DirecTV acquisition in the letter, saying the move has had "damaging results."

So what happened?

Will Power, a senior research analyst at Baird, told CNN Business that AT&T bought DirecTV because it was looking for something that would expand its offerings and "help differentiate them in the market."

"They were facing wireless competitive pressures and seeking a way to diversify," he said.

But AT&T (T) bought DirecTV just as the pay TV market began to dramatically — irreversibly — change. Netflix, Amazon Prime and other streaming businesses made cord-cutting a viable option for many television customers. People could access their favorite shows on the internet, making live and appointment television far less necessary for millions of people. And even the dominance that traditional providers like DirecTV had over delivering live television has been cut into by digital players like Hulu Live, Sling TV and YouTube TV.

And, Power noted, DirecTV rivals like Comcast and Charter also provide internet, which has helped them retain customers in a way DirecTV can't.

Asked for comment on this story, an AT&T spokesperson directed CNN Business to a statement it released Monday in which it said, "AT&T's Board and management team firmly believe that the focused and successful execution of our strategy is the best path forward to create value for shareholders. This strategy is driven by the unique portfolio of valuable businesses we've assembled across communications networks and media and entertainment, and as Elliott points out, is the foundation for significant value creation."

When AT&T bought DirecTV, the satellite service had 20.3 million US customers, and AT&T's own U-verse cable system had another 5.7 million, for a total of 26 million. As of the second quarter of this year, the two were down to a combined 21.6 million subscribers, a drop of roughly 17% in just four years. (AT&T does not disclose subscriber numbers for the two services individually.)

DirecTV's problems extend beyond traditional satellite customers, too. DirecTV Now, the company's direct-to-consumer live TV service which was recently rebranded as AT&T TV Now, has been bleeding subscribers.

At the end of the fourth quarter of last year, AT&T reported that the service had 1.6 million customers. It currently has 1.3 million. Analysts have predicted those losses will continue.

Its DirecTV purchase wasn't the only major foray that AT&T made into TV and movies. The company also completed an $85 billion purchase of Time Warner last year. That media unit, now called WarnerMedia, is the parent company of Warner Bros., HBO, and several cable networks including CNN, TBS and TNT. The move was spurred at least in part by the changing media and digital landscape, and now that AT&T owns WarnerMedia, it's also jumping into the field that is hurting TV providers so badly: streaming. AT&T plans to release its streaming competitor, HBO Max, early next year.

"Everybody is starting to take evasive action because the business is changing so rapidly," Rich Greenfield, a media and tech analyst, told CNN Business. "That's why they're doing HBO Max. That's why there's Disney+." Consumer behavior has shifted far faster than the big players anticipated it would, he said.

Power wouldn't say how much he believes DirecTV is worth now, but added it's widely felt that if AT&T sold the DirecTV business, it would get far less than what it paid.

"One intriguing option would be a possible combination with the satellite business at DISH, if they were able to orchestrate something from a regulatory and financial perspective, both of which could be challenging," Power said.

For all of the concerns around DirecTV, it still has a major draw in its NFL Sunday Ticket package — but it may lose that draw in the coming years.

Sunday Ticket, which lets subscribers watch out-of-market NFL games every Sunday, is arguably the centerpiece of the satellite TV company's service. DirecTV announced an eight-year extension of the contract for the package in 2014, so the deal will expire in the near future.

The NFL is very popular and live sports have become immensely important as the TV ecosystem shrinks. However, Greenfield said that Sunday Ticket is an "asset, but it's a very expensive asset" and Vijay Jayant, an analyst at Evercore, called it "sort of played out."

Sunday Ticket is "a loss leader and a branding capability for DirecTV on promotions, but I don't think there's a huge incremental opportunity. My general sense would be [AT&T] would like to keep it on a non-exclusive basis. I think it's played its role already," he added.