Sega has been warned that Dreamcast will struggle to claim a dominant share in the competitive console market.

According to the third edition of Datamonitor's report, Electronic Games in Europe and the US, Dreamcast will have a good first year, without competition, but will quickly be outperformed and outsold by rivals Playstation 2 and the Nintendo Dolphin (128).

Datamonitor claimed the competitors' success would be due to brand strength and support from the games and retail industry. The report also suggested that the failure of Sega's Saturn has left a bad taste in the mouths of retailers and the public.

But the claims were rubbished by a spokesman for Sega, who said: "It is clear the writer has no knowledge of the Dreamcast, the most powerful console ever made and the first with free internet access."

He added: "Sales in Japan outstripped expectations, making it the fastest selling console ever. The prospects for the US and Europe are also good. When it launches on 23 September, there will be a full range of games and a title released each week until Christmas."

The research outlined how Sony has established itself as the market's dominant player. Datamonitor claimed there are more than 30 million Playstations in the US and Western Europe. Its nearest rival was Nintendo with an installed base of less than 16 million.

Sony's base generated sales of $3.3bn in Playstation games, with Nintendo again trailing at $2.1bn. The whole market was worth $8.7bn last year.

The sector is set to balloon to $17.2bn by 2003 - sales from the Playstation 2 and Dolphin are expected to make up 52 per cent of the total figure.

Western Europe was particularly dominated by Sony - it held 72 per cent of console market revenue.

The report suggested that Sony's success has set up the Playstation 2 to be a natural successor and to equally dominate the market, although there will be a power struggle with Nintendo.

Frederic Diot, analyst at Datamonitor, said: "The Playstation 2 will greatly benefit from the success of its predecessor because of the console's backward compatibility. In incorporating this feature in the Playstation 2, Sony will allow smooth transition to its next-generation format, reassuring both gamers and retailers."

- Gem Distribution will start its Dreamcast roadshow in August. It will tour five football stadiums to brief independent retailers on the launch of the Dreamcast and its product range.