Nobody can argue the convenience of digital downloads, but there's one little problem that quickly adds up: hard drive space. Even if your PlayStation 3 hard drive is straining to hold all those free PlayStation Plus titles, you can still plug in a FAT32-formatted external drive to watch movies with your console.
Plug the external hard drive into one of the PlayStation 3's USB ports. For example, you could temporarily use the USB port meant to plug in a second controller while you're watching the movie.
Turn on your console and navigate to "Video" on the dashboard. Press "Triangle" to open additional viewing options.
Press "X" on "Display All" to display supported video files on your console. Most standard file types are supported, such as AVI and MP4, but less common types like MKV need to be converted first.
Highlight the video title you want to watch and press "X" to begin playing it like any other movie. As long as the external drive remains connected, you can watch those movies on your PlayStation 3.
Warnings:
- While you don't need to turn off your console before connecting an external hard drive, it's a good idea to shut it down before unplugging it.