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Cartridges are expensive, and they are still capable of failure.

I think optical discs will still be in use in the next generation of consoles. Given current trends, I expect them to be Bluray discs. And I also expect Nintendo to use a non-standard Bluray disc (probably to save on licensing costs).

I think the industry will go digital soon after that, mainly so that publishers could eliminate used game sales. I also expect the industry to use a method similar to Steam, where users can download a game before release, but they just won't be able to play it. This way, the downloads will be more distributed over time, and you will lessen the effect of everyone trying to download the game at the same time and overloading the servers.

Even though I know the UMD format wasn't very well accepted, it would have been impossible to release 1.6 GB cartridges for the PSP back in 2005. There is a spec for 15.6 GB DL mini-Bluray discs which I could see in use on the PSP2. Since Blurays would be more "universal" than UMDs, I think they may be easier to accept by the public.

I can see Nintendo handhelds using cartridges though. Nintendo doesn't care for gratuitous graphics, so using 1 GB or 2 GB cartridges may not be so bad. I would like to see Nintendo use a common industry format for its handhelds though (like SD cards). The proprietary formats get hacked anyway, while a standard format cartridge would allow someone to backup their saved games to the PC, for example.