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The PSPGo might have sold more if there was an external UMD drive, but the whole point of the 'Go' is that it is extremely portable, moreso than any other PSP model. So having an external drive defeats the purpose. And with concerns over piracy, I can see why Sony never came up with a solution for those who already owned UMD's.
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Sony could have allowed everyone with UMD games and films already to download the digital version from the server for free or even a small processing fee like a few $. No one in their right mind was going to buy a device which is 50-100% more expensive than their exisiting system, then buy all the games and film again, likely at a higher price than the UMD equivelent.
Not even the ultimate Hardcore Sony PSP fans would do that. It doesn't take a genius to work this out so why couldn't Sony.
It's not like they don't do this with their own films, they give away a digital copy with the Film so why not games.