Wayne Huizenga made Blockbuster Video's positive perception by Wall Street a priority. His biography details his success in doing this early. But business is never a straight line up and to the right. As business operations ebb and flow, so will perception.

In May 1989, Bear Sterns analyst Lee Seidler highlighted acquisitions-related accounting practices that he claimed inflated Blockbuster’s earnings and stock price. The inflated stock was used to acquire more businesses, further inflating earnings. Perception tanked, and the stock price took a hit. This marked the beginning of a rough patch for the company.

In 1991, the Gulf War began, and consumers watched the latest developments on CNN. Blockbuster reported growth of 31% that quarter, but Wall Street expected 40%. The stock tanked. The cable industry launched interactive cable with more channel options. Cox Enterprises, a major cable operator, announces its sale of eighty-two Blockbuster locations. Blockbuster had a confidence crisis, and some executives believed Wayne, not having the conviction of a founder, compounded the issue.

Desperate to change their perception, Wayne began diversifying. He struck a deal to buy a U.K. video rental chain, Cityvision. As part of that process, he convinced Phillips Electronics N.V. to invest $66m in Blockbuster, which provided the cash needed to close the Cityvision deal. Wayne hoped the vote of confidence by a $31 billion technology giant would squash Wall Street’s fears about technology risks.

Wayne went further by getting into music retailing. In 1992, Blockbuster spent $185 million in cash and stock to buy 236 Sound Warehouse and Music Plus stores from Roy E. Disney. That same year, he struck a deal with Richard Branson Virgin Music to open Virgin Music stores in the United States. Blockbuster went on to copy Virgin’s concept and open smaller Blockbuster Music stores, which didn’t go over well with Virgin and Branson.

That same year, Wayne met with an investment banker and Wall Street analyst to discuss Blockbuster entering the entertainment industry. In 1993, he purchased 35% of Republic Pictures Corp, its thousand-film library, and warrants for $25 million. Also in 1993, he purchased 48% of Aaron Spelling’s Spelling Entertainment and its hits, such as the Beverly Hills 90210 TV show and Terminator movies, for $140 million. Wayne combined the two publicly traded companies into one, of which Blockbuster owned 70%. He also bought 20% of Discovery Zone’s indoor playground business for $10 million in 1993.

Wayne used his dealmaking skills and transformed Blockbuster into an “all-around entertainment company.” Analysts took notice, and perception started to change. This, combined with positive and increasing cash flow, led institutions like State Street to buy and lift the stock price.

This increasing cash flow (and somewhat positive perception) would ultimately lead to the biggest deal of Wayne’s life.

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