It's because UMD is the disc format for the PSP, and outside of it's uses as storage media for PSP games, it's a failed format as well. It's on life support and (I'm guessing) will be dropped when PSP2 comes out.
Also, UMD has no direct competitor in terms of portable media-viewing. There are avi and media files, but they are easily pirated (so not a viable option for companies at the time) and portable DVD players are impractical because of their size. Basically it died because MP3 players provided portable avi viewing at that point, so UMD became redundant from a consumer perspective (and carrying around all those UMD's is also impractical) so that's why they didn't jump onto it. So while it had no commercial competition as a format (avi = impractical for business at the time), it was a failed format because there was a superior alternative in almost every (in every important) way.
I also agree with FaRmLaNd's post.
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