A new report from research company Screen Digest entitled 'Next Generation Console: Games Publishing, Hardware Analysis and Forecasts to 2010' has warned that many companies will struggle to make a profit from the next-generation console race, as well as adding that Sony’s huge development investments will give PS3 the edge in the global market.

It states that due to the rising development costs needed to make next-gen games, only a tiny proportion of titles are likely to achieve profitability in the near future.

It also found that publishers are doing everything they can to combat the challenge, including increasing their levels of outsourcing, releasing games on as many formats as possible and relying heavily on sequels and film licences.

Elsewhere in the report, it also claims that despite the challenges PS3 is likely to face thanks to its high RRP and late arrival in the next-gen race, Sony’s huge internal development capacity will drive the machine to overall dominance. However, the platform holder will have to rely on a strong performance in the Japanese market, with the research firm foreseeing a close race in Europe and an overall victory for Xbox 360 in the US.

“While the previous generation was quickly dominated by Sony’s PS2 across all major territories, this time we anticipate a more competitive situation where market share is likely to be split on a territorial basis,” the report’s author Ed Barton stated. “Xbox 360 has a 12 month advantage, but whilst it has built a strong position in the US, it hasn’t been able to achieve the traction needed in Japan, and Southern Europe remains a challenge.