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I do not think Sony "gets" the PSP either.  

I own 21 PSP UMD games (plus a good few PSN games) and only 8 of those are unique PSP games.  While this does not particularly bother me, I am not the audience Sony should have been targeting.  I can see the problem here in the West.

 The PSP has many fantastic JRPGs on it (both unique like Crimson Gem Saga and remakes like P3P) but these are not "big" in the west (these type of games with MH are the bread and butter for the system in Japan)  When I look at the library, I do have a hard time seeing exactly what the casual, mainstream (for lack of better words) Western audience would see in the PSP.  

Some of the issues I see with the PSP in the West (selling to new customers) are:

 

  • Lack of real PS3 integration.  The PS3 has been doing very well in the West recently and the PSP could try to ride some of that success.  Why can I not hook my PSP into my PS3 and have my PS3 upscale the graphics for my TV?  Why can I not have the PS3 handle the controller, so I can now use my PS3 controller wirelessly? (yes I know you can with the Go, but this should work for all systems)
  • Lack of games targeting the Western Audience.  Remakes, JRPGs, and PS1 classics will not sell millions of systems in the West, at best they will sell thousands.  
  • The PSP does feel like the PC as of late.  Many games on the system just do not feel like they were made FOR the system. 
  • Price is always an issue and with slumping sales it looks like the PSP needs a price cut. 
  • Advertising!  Until very recently, I would not see any advertising anywhere for the PSP.  In massive electronic stores, gaming only stores, the internet, TV and others, I would hardly ever see out in the open marketing for the unit.
  • Needs more First Party Western Studio Sony Support.  Not just remakes or reboots or sequels, but it needs new Sony Western IP support.  It is almost as if they are afraid of putting their new IP ideas on the handheld.
I went on vacation a few weeks ago.  We went into a bar and I noticed something quite interesting.  There was a family of 10, sitting in this bar/seafood restaurant (that is absolutely awesome in Myrtle Beach)  Every single one of them was playing their Nintendo DS waiting for their dinner.   I see people all over playing their Nintendo DS out in public, but I hardly ever see people doing that with their PSPs.
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Could this have something to do with it?  Do people in the West not see the PSP as a socially acceptable device perhaps?  In college when I saw people playing their handheld of choice, it was always the Nintendo DS in full view.  The people who played their PSPs were ALWAYS against a wall, in a corner, hiding it (or so it seemed to me)  It was almost as if they were afraid of people either seeing it, or trying to steal it?
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I love my PSP and when I look at it and think, "Sony missed a great opportunity here/here and here" I can only imagine what other handheld gamers think (or in this case do not think) of the PSP.