The Financial Times (via Wallstreet Journal (subscription)) reports that Sony is apparently launching a video download service for the Sony PSP in the first half of 2007.

If Sony is really planning on doing this, then there needs to be a new Sony PSP with Hard-drive available (Sony PSP HDD rumor). The Apple iPod video has 30GB. The PSP can only be a serious video player if it can store downloaded videos. Memory sticks are still too small, even if Sony claims to store 10 movies on a 4GB stick.

We know that watching movies on the PSP is awesome. The screen is fantastic. UMD sales though slumped. It is clearly more interesting for PSP users to download movies, so this is a step into the right direction. Of course Sony needs to deliver a broad offering at reasonable pricing to succeed.
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