According to a report released today titled "Games Consoles For The Digital Home: Assessing The Prospects For PS3, Xbox 360 And Revolution", Microsoft's Xbox 360 will present a serious challenge to Sony's dominance of the games console market and will lead the North American and European markets until 2007. But the PlayStation 3 will eventually pull ahead if Sony ensures that its online experience matches that of the Xbox 360, and that its Cell processor technology meets its full potential to transform gaming into a near-video quality experience.

The report describes how both the PS3 and the Xbox 360 will become cornerstones of each company's digital home strategy. Sony will use the PS3 to help establish Blu-ray Disc and the Cell processor as mass market technologies. For Microsoft the Xbox 360 could secure a leading position for the home PC as a broadband digital media server.

"The Xbox 360 represents one of Microsoft's best hopes of controlling the digital home," notes David Mercer, Principal Analyst at Strategy Analytics. "The 2005 holiday season will be a make-or-break time not only for the Xbox 360, but also for Microsoft's wider digital home strategy."

The report predicts that Sony will sell 121.8 million PS3s worldwide through 2012. Sales of Xbox 360s are expected to reach 58.8 million and of Nintendo's Revolution nearly 18 million. Cumulative retail revenues for all consoles over this period will exceed $47bn.