To buy or not to buy?

Sir Richard Eyre, the director of the Royal National Theatre, is normally a busy, anxious person, but last Wednesday he felt like a kid in a sweetshop. There were three plays in the NT's repertory that evening; they all played to full houses, and they had all been directed by him.

Towards the end of the evening, Eyre treated himself to a selection of excerpts from his own work. First, he looked in on the Olivier Theatre to hear the cast of Guys and Dolls belt out encores of the biggest hit in the show, "Sit Down, You're Rockin' the Boat". Then he slipped across to the Lyttelton to watch the climax of Dame Judi Dench's poignant performance in Amy's View, David Hare's new play. Finally, he walked through the narrow corridors backstage to the Cottesloe Theatre where Ian Holm was completing his epic performance of King Lear. "It would not be exaggerating to say it can't get any better than that," says Eyre.

That same day, less than a mile away at the Old Vic, Sir Peter Hall was rehearsing his own King Lear, his first after 43 years in the theatre. Directing Alan Howard as Lear, Hall was growing excited by his discovery of a huge, basic strand in Shakespeare's most challenging play. When it opens on 5 September, Hall will also have three plays in the repertoire.

The Old Vic is home to the Peter Hall Company - a more modest, privatised version of the Royal Shakespeare Company which Hall started in the Sixties - and it had been like a sweetshop for him too. Now it has begun to feel a bit more like a morgue. Four days earlier, the Canadian owners of the Old Vic had announced it was for sale. Hall has to be out in December. "I thought I'd be able to do this for five years, so, yes, I'm, rueful. Actually, no, I'm miserable," Hall says.

These two stories are intricately intertwined. Eyre, who succeeded Hall at the National Theatre, also has good reason to feel more than rueful about the casual sale of the Old Vic.

The NT's studio is housed in a modern annex at the side of the Old Vic theatre building, and Eyre describes the sale as "a threat to a vital part of the anatomy of the National Theatre". Thus, even in his last few weeks as director before he hands over to Trevor Nunn (whose place in this merry-go-round of the modern British theatre is that he succeeded Hall at the RSC), Eyre, too, is desperately seeking a solution. On the morning of his triumphant progress through the NT's stages, Eyre had discussed with close colleagues making a bid for the annex, perhaps for the Old Vic itself.

The National Theatre was born in the Old Vic, outgrew it, and moved to its concrete palace on the South Bank. If it were to buy the Old Vic, it would be a wonderful coup de theatre. One dictated, however, by the harsh commercial realities of our theatre in the Nineties.

Recently Richard Eyre has been waking up in the morning feeling depressed, no less so than he did nine years ago when he started the job. "It's a pre-echo of grief at the thought of leaving," he says. But the depression quickly drops away after he arrives at his office looking across the Thames to Somerset House; there is still too much to do.

Every morning there is a management meeting at 9.30am. After all, the NT is a medium-sized business, with an annual turnover of pounds 27.5m; pounds 16m of this is earned, mainly from ticket sales and catering. The shortfall - pounds 11.5m - is the grant from the Arts Council. That subsidy is the principal difference between the NT and Hall's Old Vic company, which relied on the patronage of Ed Mirvish and his son David, whose family retail business in Toronto provided the money to restore the theatre and take care of production losses - until last week.

On Wednesday, the Old Vic was on the agenda at the morning meeting because the NT has to come up with a strategy that will assure the survival of the studio. Eyre had learned that Ed Mirvish would be well disposed to a bid from the National. The question he needed to discuss was whether the National should bid for the annex or for the whole lot.

"It's pure, wild hypothesis, but we could run the Old Vic as a transfer theatre for our own work, and when we had nothing on there, we could lease it to other managements," says Eyre.

Midday is the start of rehearsals for Eyre's last production as the NT's director, opening days before he leaves at the end of next month. It is Sir Tom Stoppard's new play (the subject is the poet AE Housman; "it's about unfulfilled love," Eyre reports), and the rehearsal runs for six hours without a break. It was hard work - "like walking thigh-high through molasses" - but Eyre likes his association with Stoppard: "He's a theatrical animal, bright, droll and courteous, and he understands the process."

Stoppard and Hare are associated with Eyre's directorship just as Harold Pinter and Peter Shaffer were with Hall's. The different styles reflect different artistic personalities. Eyre's biggest hit now is Hare's Skylight, a play about the conflict between entrepreneurialism and public service, which is on again in the West End after a successful run on Broadway. Hall's hit is his revival of Samuel Beckett's legendary and obscure Waiting for Godot, which is selling out at the Old Vic.

Before the evening performances Eyre does the rounds of the stages for a quick word with the actors. King Lear goes on first, and Eyre talks quietly to Ian Holm who sits for 30 minutes in his costume contemplating his forbidding role, and darts away before the rest of the cast appear. "You in tonight?" says the Duke of Gloucester to Eyre, as if the cast was so good it was not necessary. But actors do not like to feel that they are being neglected, and the director's permanent presence is one of the benefits of working in subsidised repertory.

Next Eyre makes for Judi Dench's dressing room where she gossips with him about her new film, Mrs Brown, in which she plays Queen Victoria (see Review page 15) in an open and loving manner, sharing her emotions freely just as she does on stage.

When he visits Imelda Staunton, who is playing Miss Adelaide in Guys and Dolls, she tells him in a matter-of-fact way that the show is in good nick, but, as he turns to go, she leaves a bright red lipstick mark on his cheek.

Theatre people are familiar with insecurity. Eyre sees it in himself, and thinks he recognises similar insecurities in Hall: "It has to do with needing to verify your existence and value by a visible sign," he says. This does not merely mean good reviews. It extends to confidence and companionship, and this was on show at the National Theatre last week.

Government subsidy is declining in real terms (down by pounds 1.5m in the last three years), but it is still big enough to support a remarkable volume of good work by actors at the top of their profession, backed up by a large, permanent stage staff.

The Peter Hall Company is, by comparison, like a small family business. The company of 30 actors work regularly in a repertory of five plays which are performed, for the first time in London, seven days a week. A cost- effective approach to stage design and costumes means that the production budget for 13 plays is pounds 300,000, a sum insufficient to finance the revival of Guys and Dolls at the National. The wages - stars get pounds 1,000 a week - are on top of that, but the only financial control imposed at the outset by the Mirvishes was that the shows should play to average audiences of 65 per cent of capacity: "We'll look after the money," Ed Mirvish told Hall.

Hall was confident that they would break even in the first year, but, despite excellent reviews for the concept and for most productions, 65 per cent proved easier said than done. The Old Vic is a legend among middle- aged theatre-goers, but most under-35s have never been there. The audience grew slowly, and by early August, losses amounted to more than pounds 500,000.

The Old Vic season has been an artistic success for Hall, and the press has been better than he has had for some time. When he said he had never been happier, he meant it. His production of Waiting for Godot is already a classic, and his first production of Lear is eagerly awaited. But, retail sales in Toronto are weak this summer, and the money was more than the Mirvishes cared to look after.

Peter Hall's company is not extinct. Some plays scheduled for next year will be produced in the West End, though they will require stars in the cast. Unlike the National Theatre, which has developed an institutional capacity to grapple with financial crises, his company's mounting losses at the Old Vic are terminal. Hall's disappointment is palpable.

Richard Eyre, who treasures memories of the Old Vic ("it was dirty and demotic"), identifies the problem precisely: "It's a theatre that can't be run without a public subsidy." Which may mean that it can't be run at all.