There was a time when Sony was championing the next great disc based medium for the masses. They built special music players, had a silly mascot, acquired the rights to print Hollywood flicks and built a gaming system entirely around said medium. That was the UMD, and Sony's officially ditching the UMD drive with the NGP later this year.
Sony has unveiled that the NGP will be backwards compatible in a way that's entirely digital. Gamers will have access to the PSP library, though how much of it is currently unknown, through the PlayStation Store on their NGPs. The games will be upscaled to a level that makes them more enjoyable on the better hardware available.
The NGP will definitely not have a UMD drive; that explains the decision to move away from the UMD medium. The problem there is that abandoning the medium means ditching the physical copies of games people already own. Look at the home consoles… they've upgraded the disc medium, absolutely, but they've kept it in a basic disc format. Xbox games play on the 360, GameCube games play on the Wii. It's only when a company completely abandons a medium like the UMD or the cartridge that its consumers are, honestly, screwed.
While no announcement has been made for this next bit, we're assuming the worst until we hear differently. If you already own a game on UMD, odds are if you want to play it on the NGP you'll have to buy it again from the PlayStation Store. How will that resonate with gamers? Time will tell.