A major new report into the future of Edinburgh's world-leading festivals says they may have to share operations, find an extra £10m a year from alternative funding, and radically improve their digital products in the next ten years.

Looming funding challenges could see the city "relegated" from the top tier of cultural cities, the report warns.

Thundering Hooves 2.0 is the name of a new report for the Edinburgh festivals, commissioned by the overarching Festivals Forum and produced by Festivals and Events International (FEI) and BOP consulting.

It is named after a 2006 report which warned that the city's pre-eminent position as a cultural capital was under threat from other cities.

The report is the next chapter of the same project, and aims to set in place a series of measures to maintain the capital of Scotland's place as the "world's leading festival city" including improved city-wide IT, travel and accommodation measures, and even a new concert hall.

It also proposes a 'Memorandum of Understanding' between Edinburgh and Glasgow city councils as their positioning should be acknowledged as "complementary" when it comes to the annual festivals.

The report says that other cities are "investing in infrastructure and resources aimed at challenging Edinburgh Festivals' success, and whilst they will never be able to replicate the city they are starting to expose some of the weaknesses of the Edinburgh offer."

In particular it warns the city that an approaching "fiscal cliff" as public funds are under threat has to be faced, and it also says the city and its 12 festivals are "behind the curve" in its digital offerings.

It warns that "if current investment into the world class programming of Edinburgh's festivals is not maintained, their Premier Division status is at risk of relegation."

It adds: "Public funding, whilst essential, is clearly going to reduce in the light of the overall changes in public finances and a long term stalemate exists around alternative mechanisms.

"New thinking and innovative solutions are required."

The report says that if public investment has to be replaced entirely "some £10m a year will need to be generated from alternative funding mechanisms."

The combined income of Edinburgh's festivals in 2014/15 was £36m.

Of this approximately £9m came from public funding, the rest being commercial earned income.

In 2011 it was estimated that the festivals generated £261m of additional expenditure in the Scottish economy.

However, the report adds: "Local Authority finances are reported to be facing a 'fiscal cliff'.

"Large scale, radical solutions are now needed to replace eroding public funding and these must include potential alternative funding models, even if they present their own constraints."

It also says it would be "unwise" of the individual festivals to not consider working closer together.

The report does not mention mergers of festivals, but does say "given the potential 'fiscal cliff' facing public sector finances and the still fragile economic recovery, it would be unwise not to consider if economies of scale could be achieved by the festivals working more closely together.

"Groups of arts organisations across the UK have been considering this approach and the festivals should convene a task group to look at the potential."

The report has been funded by the Scottish Government, City of Edinburgh Council, VisitScotland, through its EventScotland team, Creative Scotland, British Council Scotland and Scottish Enterprise.

The report says the festivals as a whole should consider a range of measures to maintain the cities cultural reputation, especially as the 70th anniversary of the "birth" of the city as a festival city - the formation of the Edinburgh International Festival in 1947 - is looming.

Other ideas the report suggests includes an improved transport offer, with a "festival travel pass" mooted, with improved travel timetables to the suburbs, the wider city, and "key markets such as Glasgow, York, Leicester and Bristol."

It also reports, "shortages at both the low-cost and luxury ends of the market and the very high occupancy rates which occur as a result of the tourism the festivals attract, can make it challenging for visiting artists to find suitable accommodation."

On the subject of venues, already a concern of the ongoing Desire Lines cultural initiative in the city, it says the festivals should "[encourage] philanthropic investors; an overarching cultural venues organisation with a long term investment role; and encouraging the tertiary education sector's involvement.

"The Festivals Forum should consider supporting proposals for a range of new venues including a new Concert Hall," it adds.

It says as far as digital communications and IT are concerned "festivals are behind the curve on digital innovation, and despite some important programmes and initiatives, like Innovation Lab and ProjectLab, risk being overtaken by others.

"Edinburgh's festivals must be a digital phenomenon as well as a physical one and need to be leaders in the digital sphere as well as the festival sphere; for a new generation the challenge is now from online video platforms."

The report also addresses the disconnection between the festivals and some part of the city's population.

It says: "Edinburgh's populace feels great pride in the festivals but this does not necessarily equate to engagement. "Many of those expressing pride participate in any number of ways; but many, particularly those in the most deprived areas, do not. The gaps between pride, engagement and participation need to be closed."

Susan Rice, the chair of Festivals Forum, said: "We're delighted to share Thundering Hooves 2.0, an important report which sets out the strategic plan and recommended actions for Festivals Forum to take forward during the next ten years.

"While much has been delivered already, this review and re-focus will ensure Edinburgh addresses key challenges and opportunities ensuring the Festival City retains its global competitive edge in the months and years to come".

Councillor Richard Lewis, festivals and events champion for the City of Edinburgh Council, said: "While recognising the financial constraints we currently have to deal with as a local authority, we need to work together with festival partners to support their ambitions and ensure our residents, visitors, businesses and

educational institutions continue to benefit from them in the future."

Ken Hay, chair of Festivals Edinburgh, said it was an exciting and critical time for Edinburgh's Festivals.

He added: "We are looking forward to building on the successes of our collaborative approach over the next ten years in addressing the many opportunities and challenges facing us, not least ensuring that Edinburgh retains its position as the world's leading Festival City."

Nick Dodds, director of Festivals and Events International (FEI) and Josephine Burns, senior associate of BOP Consulting said: "In developing the new strategy we have been impressed by the depth and quality of the festivals' offer and their growth and resilience over the last ten years.

"There are many significant challenges ahead. But as long as the festivals continue to innovate, develop and attract investment in the ways we recommend, Edinburgh will remain a pre-eminent world class Festival City."