Edinburgh's Filmhouse would need to undergo a "restructure" to secure a long-term future as a cinema, a councillor has said.
Iain Whyte, Conservative group leader at the City Chambers, told a council meeting the way the non-profit movie theatre was being run "clearly wasn't working" and said a nearby arthouse cinema "works very well" on a commercial basis.
Councillors unanimously reiterated the council's position that the now boarded-up Lothian Road building should remain as a "centre of film culture" as administrators continue discussions with potential new owners.
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One said the local authority, which has given £500,000 to the Filmhouse in the last five years, could not be a "mute participant in this scandal".
The much-loved cinema, along with its café bar, have been closed since October when parent charity Centre for Moving Image (CMI) announced it had ceased trading and called in administrators.
Save the Filmhouse campaigners, local politicians and big names in the film industry have put pressure on liquidators to ensure whoever takes over the site is committed to continuing its use as an independent cinema.
Plans for it to re-open as a bar-restaurant were ditched after the Edinburgh-based Signature Pub Group revoked its bid. The most recent development saw local businessman John Alexander announce he was working with former Filmhouse staff, the Scottish Government and others on proposals to save the cinema.
As the situation was discussed at the council's policy and sustainability committee on Tuesday (March 21) councillor Whyte said: "I think we have to be aware that administrators have a duty to get the greatest funding available, and they do that not because they're taking the money in but because they're paying back creditors - people who are owed money who have provided supplies and services to the body that has become bankrupt.
"I'm also very conscious that we're talking about an institution that we've heard here has had £500,000 of funding from us over the last five years and gained considerable funding from Scottish Government as a bailout.
"I'm also concerned about some of the implications of saying 'we should just make sure we get this back the way it was' because clearly the way it was wasn't working".
Councillor Whyte said it would "need a restructure if it is to go forward".
He added : "Not very far away from the site there is another arthouse cinema in the city that works on a commercial basis and works very well.
"While we support as much as we can efforts to maintain our cultural circumstances and our cultural benefits we have to be aware of the difficulties that there are."
The SNP's Finlay McFarlane said: "We cannot turn back the clock now that liquidators have been appointed, we have no locus to intervene in a private sale.
"But what we can do is to stand together and speak with one voice to remind the administrators of their initial hopes that 88 Lothian Road would not only have new direction, certainly new governance, but crucially would remain a cinema.
"The reports that the preferred commercial bid has been withdrawn mean the administrators have a crucial opportunity for a reassessment of the situation and the approach that they are taking.
"The City of Edinburgh Council cannot afford to be a mute participant in this scandal while we understand there to be reports of viable cultural bids."
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