Less than five months after opening - and just two weeks since it's official launch - the region's newest theatre is in difficulties. NICK MORRISON looks at what went wrong, and the implications for the arts in the North-East.

HERALDED as a bright new star in the arts firmament, its shimmering glass and stone form hangs imperiously above the River Wear. Filling a gaping chasm in the North-East's cultural scene, it was finally giving an historic cathedral city a venue to be proud of.

Less than five months after welcoming its first punters, a shadow has fallen across Durham's Gala Theatre. For weeks, the city has been filled with rumours of a looming financial crisis, amid talk of an unpopular programme and poor ticket sales.

Now, as the team responsible for running the Gala has finally admitted defeat, it seems the future of the £14m flagship has come into question. And, to those ready to look on the dark side, the prospects for the arts in the North-East could scarcely appear bleaker.

Coming just six months after the Arc in Stockton went into liquidation, problems at the Gala cast doubt over the appetite for the arts in the region. Hardly a healthy portent for the bid to bring the European City of Culture title to the North-East.

But the Gala's difficulties are completely different to the problems which saw the Arc shut its doors, according to Northern Arts, the region's guardian of culture.

While the £9.5m Arc opened over budget and failed to attract sufficient punters to its eclectic programme - and is still in darkness as negotiations continue over its future - audiences at the Gala are said to have exceeded the forecast in the original business plan, running at around 60-65 per cent.

Instead, the downfall of the Gala's management company is said to be the result of the failure of the launch event, back in January. Booking boybands Westlife and A1 must have seemed a sure-fire money-spinner, guaranteed to both draw in the crowds and propel the Gala into the public consciousness in style. Seeing an opportunity to make a mint, the theatre decided to relay the concert to a marquee, enabling them to sell even more tickets.

Unaccountably, tickets for the marquee failed to shift - some blame poor marketing - and it was cancelled with just days to go. And with the audience inside the 500-seat theatre largely made up of dignitaries and invited guests, instead of paying punters, the event seems to have proved a financial albatross.

"We understand that the management company ceased trading because they were over-optimistic around the launch event," says Richard Bliss, Northern Arts communications officer. He says that far from proving unpopular, the Gala's programme has surpassed expectations and ticket sales are good. And with the healthy base of a 500-strong Friends group, the prospects for the theatre are good.

"The situation at the Gala is completely different to the situation at the Arc. There isn't really a problem with the Gala," he says. "We understand that the Gala is attracting really good audiences and they have some sell-out shows.

"We have asked about their general level of occupancy, and they tell us they're on target as far as their business plan is concerned. We are not worried about the future of the Gala."

While events such as Jack Charlton's appearance at the theatre on Sunday and The Woman in Black next month are said to be sell-outs, and tickets for King Lear in November are understood to be going well, there have been grumblings about some of the programme.

Critics have questioned the wisdom of booking cricket commentator Henry Blofeld and raconteur Clement Freud for Saturday nights, as well as a play - The Lavender Hill Mob - weeks after it was staged just 20 miles away, at Darlington's Civic Theatre. And inadequate marketing, with posters hard to find, has been singled out for failing to inform the public of what was on their doorstep.

There have also been murmurings over the deal to show Disney's Beauty and the Beast on the theatre's giant screen cinema. Locked into a contract to show the film five times a day, projectionists often found themselves playing to an audience barely reaching single figures.

And not everyone shares Northern Arts' optimism over the future of the venue. There are those who say the original business plan was grossly over-optimistic and relied on audience figures which were unrealistic.

Even the design of the theatre itself has been criticised, with suggestions that, at 500 seats, it is both too small to make a profit from big productions, and too big to make a profit from small ones. While few people doubt that Durham does need a theatre, the feeling among some is that it has got the wrong one, and the long-term prospects are grim.

Closing such a high-profile venue, particularly just a fortnight after the Queen gave it her blessing as part of her Golden Jubilee tour, was unthinkable, leaving the city council with no option but to ride to the rescue. But this leaves the question of whether it will become a burden to the council tax payers, forced to dig deep into their pockets to save the faces of the Gala's champions.

And while Northern Arts sees the retention of most of the existing staff - from general manager Rob Flower down - as a sign of confidence in their ability to deliver, others fear the empty seats are more of a worry and are calling for a new team to be brought in.

It seems the one thing critics and supporters can agree on is that parachuting in a management team from outside the region did not help the Gala. According to Richard Bliss, the lesson to be learned from the Gala is not that there is no room for another venue in the North-East, but that local venues are best managed by local people, instead of a London company with no experience of arts in the region.

But while the new regime at the theatre is taking a bullish stance on their prospects of survival in the face of growing scepticism, it remains to be seen whether the Gala will yet go stellar, or is destined to become a black hole in the cultural universe.