Well, I talked to Ellefanning about this the other day.
You see, obviously there are hardly any PSP games coming out, but the main reason for this is, surprisingly, all the hackers.
I know, it's crazy, but look at it this way: When people buy PSP's (which they are; they're selling really well), Sony expects them to buy a ton of games. But what people have been doing (except for me) is just hack their PSP and play games illegally. If they do that, they obviously won't need to buy any retail games, so Sony thinks "Hey! What's the point of publishing any more games in the US if nobody buys them?"
Yeah, I could be a lot meaner to hackers, but I bet any smart person could connect the dots from there.
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Okay, enough ranting. As for whether the PSP is dead, I think that, if Sony markets the system in a new way, they could go and localize a ton of Japanese PSP games quickly and save it. Plus, they're coming out with a LEGIT program called AdHoc Party, where you can play a ton of different local PSP games in an XBL-esque format. That should help.