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Plus it just makes a hell of a lot more sense for a portable device to use internal memory for low res video.

UMD movie distribution was just a bad idea period that only became exemplified as soon as iPods with video functions were introduced.

Even as a form of game distribution, it was pretty far from being ideal as it is generally a bad idea for a low power portable device to use spinning optical media (power consumption, access times, additional moving parts, etc.). Plus the basic idea of carrying media for a portable device is essentially obsolete.