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Sky Render said:

The most important component was ignored, however: how the product is perceived by the end user. The PSP is not looked at as a gaming-centric device, for the most part. The mainstream see it as yet another all-in-one device, with an overblown price tag to match. And part of the justification in buying such a product for somebody who doesn't really want to pay that much is that they can just get the media to play on it for free. Remove that option, and hardware sales will drop down to match the true demand for the product as a gaming system or all-in-one system.

Ironically, my personal experience (FWIW) is the opposite.  Most people see the NDS and PSP as gaming devices.  In fact, a lot of people I know who aren't "gamers" that probably don't know anything the PSP really does outside of playing games.

However, the NDS has Mario, Pokemon, and an assortment of other titles that they recognize.  The PSP has...?  I know that it has Crisis Core and the rest, but they draw a blank.  There's no easily recognizable icon that they recognize.  To them it's like going into a store and picking between Jiff peanut butter and the off-brand and the off-brand is more expensive.