We finally learned the video industry’s dirty little secret: the real cash cow was not video rentals, but adult video rentals.

Five minutes with a realistic spreadsheet would have made this obvious - the economic fundamentals of the adult video business were far better. First, wholesale adult videos were half the cost of new releases. Second, rental fees for all adult videos, including older titles, were higher than other movies. Third, you could count on your older adult titles to continue producing revenue for a long time. While there were those who eagerly waited for the release of a movie featuring their favorite star, there was a steady stream of uninitiated customers who were far more interested in keeping the transaction discrete than knowing exactly what they were going home with. Finally, since Blockbuster didn’t rent porn, it was easier to attract customers.

Pete was very interested in adding adult videos to our offerings. He even figured out how to do it discreetly (by merchandizing the video covers in spiral binders and providing a place in the back where they could be flipped through). I, on the other hand, was influenced more by my conservative upbringing and years of church services than by my capitalistic instincts. I was absolutely opposed.

After a brief period of deliberation, we decided to stay out of the adult video business and hoped that we could make it up in milkshakes.

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