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What does he mean by fail?  For Sony or for 3rd party game publishers?

For Sony, no way was it a failure.  65 million with your initial dip in a market?  No way.

For 3rd party game publishers?  Not sure.  I don't remember a lot of games blowing up any charts outside of Japan considering how large its userbase was.  I'd have to dig more (or better yet yield to those that have already done the research), but that's the only area where I could see some calling the PSP a failure.