The shake-up aims to clear a "funding logjam"

There will no longer be automatic core funding for the 100-plus companies currently on the organisation's books.

From next March, some will be eligible for long-term "foundation funding" while others will be offered "flexible funding" for up to three years.

SAC chairman Richard Holloway said it had been forced to make some hard choices based on artistic standards.

The high-profile casualties who have lost their funding include theatre companies 7:84 and Borderline.

Mr Holloway said the new system would clear a funding logjam and pave the way for new talent to flourish.

We've had to make some hard choices in the process of this review Richard Holloway SAC chairman

"Art in its development, in all its forms, is a dynamic, flowing reality," he added.

"But in Scotland what we saw was a logjam - artists and organisations locked into a process that produced little space for change and development.

"The strategic review was a root-and-branch investigation of the whole landscape of arts funding in Scotland with a view to getting this logjam moving, as we'll be building in space for the surprises of new talent and new approaches."

Glasgow-based 7:84 was told that its core funding would end in August, while Ayr-based Borderline has no funds beyond March 2007.

Shock and anger

Ruth Ogston, general manager of 7:84, said the company was seen as being too "audience-focused" given the arts council's new priority of supporting the artist.

She expressed shock and anger at the decision and said there were plans for an appeal.

However, Mr Holloway stood by the new proposals, adding: "We've had to make some hard choices in the process of this review, but we believe we've made them on the basis of appropriate artistic standards and we stand by them."

He emphasised that there would be no hierarchy between organisations that received either foundation or flexible funding.

Merger plan

"It's a question of horses for courses, not thoroughbreds versus carthorses," Mr Holloway said.

The chairman said the changes would coincide with a �7m boost from the Scottish Executive for 2007-2008 and he pledged a "dramatic injection of new money into some new organisations".

The SAC is being merged with Scottish Screen to create a new cultural development agency to be called Creative Scotland.