In a disused tobacco factory in Bristol, Andrew Hilton is staging a large cast production of King Lear in a venue that seats only 200. He is charging twice the amount usually paid for studio productions. What's more, he has steered clear of seeking any subsidy whatsoever. By the standards of modern theatrical management he's obviously as mad as a March hare on St. Patrick's Day. And yet steadily growing audiences and resounding critical acclaim suggest that he may well have succeeded in reversing the paradigm for box office success.

It is a generally accepted axiom that without subsidy or a nice big auditorium full of paying punters, it is not possible to put on a large Shakespearean production with professional actors receiving a decent wage. Anyone wanting to stage the Bard in a small venue without state aid must be prepared to receive the pittance generated by most profit-share productions, or represent a cast of dozens with five energetic actors and a selection of moth-eaten wigs.

One of the main reasons for this, argues Hilton, is the hierarchy of pricing in modern theatre. While audiences will happily pay upwards of £15 to sit in the stalls in a main house, the studio space only charges £7, and pub theatre comes in at a fiver. "This strikes me as being ludicrous. I'm not sure why intimate theatre is worth less than 'big' theatre. Personally I think it's worth more." The close proximity of the actors, he believes, the sensation of being in the heart of the action and the chance to enjoy the subtlety and the interplay actually offers audiences a more powerful - and theoretically a more valuable - experience, even if it means missing out on such main auditorium perks such as ice-cream sellers and a handsomely painted safety curtain.

With no member of the audience more than 20 feet from the stage, Hilton is using a price range closer to provincial main house prices. Another factor in the equation was his desire to do it without applying for any money from the public purse - a desire partly based on principled altruism, and partly on more pragmatic considerations.

"There are problems with applying for subsidy because there's a fairly finite cake, so if you're a new company coming in applying for subsidy you are inevitably going to shave bits of other people's subsidy. I think you've got a responsibility to think very seriously, 'Do you need it?'." Furthermore, subsidy in the 21st century comes with strings attached. "What to me would be the essential criterion - is this theatre company any good - goes out the window," he explains, "and we introduce all these other criteria: what is the mix, what is the outreach programme, what is the audience profile? It becomes a social service, and that is very difficult and very demoralising."

To realise his artistic vision he set out in search of investment. The returns he has offered aren't great ("It's not the sort of investment which will keep you in your old age") but he firmly believes that the investors, who have contributed more out of love of the theatre than a desire to accrue millions, will at least get their money back. "If they don't, the experiment - and this is an experiment - will have failed." At the same time, he is still hunting for business sponsorship to help fund concessionary rates for students and the unemployed - a social good which a tight commercial budget can ill afford.

With performances now coming close to selling out, Hilton's spellbinding Lear has seen progressively larger audiences in a city where word of mouth is the key determinant of success. Advance bookings for the follow-up production of A Midsummer Night's Dream are already healthy, suggesting that audiences may be opting for the apparently safer option of a comedy in preference to one of Shakespeare's most tragic tragedies. Yet by opting to stage the more 'difficult' play first, Hilton has recognised that it is King Lear with its clear-cut soap opera story-line which has the potential to appeal most immediately to a 21^st century audience. Having managed to bring TV drama clarity to Lear, Hilton and his cast can be expected to make even the intricate convolutions of the Dream gripping and lucid. Those who have revelled in Roland Oliver's grumpy royal patriarch will be keen to return to see his Bottom.

If it can succeed in Bristol, whose inhabitants are notorious for expecting 'value for money', the experiment could lead to a reshaping of theatrical business practices throughout the country. But Hilton is quick to repudiate any suggestion that he is leading the vanguard of a new theatre for New Britain. "I have no desire to be a torchbearer for a kind of new Thatcherite theatre. It's not that I want to present a kind of theatre that people can't afford - that's the last thing I want to do. But I just feel that these questions have never been asked. There is nothing wrong, in the end, in presenting a product that people want to buy - if you believe in it."

TOBY O'CONNOR MORSE

'King Lear' is at the Tobacco Factory, Bedminster, Bristol to 11 March, followed by 'A Midsummer Night's Dream' 15 March - 8 April (Bookings 07989 468584)