The festival is based around Queen's University
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Guinness is to halve its funding of the Belfast Festival at Queen's and could pull out completely within two years.
The drinks company has been the main sponsor for the 40-year-old event, but now it is changing its sponsorship policy.
It is believed the university-based festival was given £100,000 from Guinness last year but this will be cut to £50,000 for the next two years.
That will fund jazz, world music and comedy events, but after that Guinness is not expected to be a major sponsor.
The news will be a blow for Queen's, but senior festival staff have said they are optimistic about finding another major sponsor.
The two year wind-down with Guinness on reduced funding, they said, would help bridge the gap and create an opportunity to find other sorts of sponsors.
A spokeswoman for Guinness said the company was looking for another sponsorship deal which would be spread across Northern Ireland rather than Belfast-based.
There was a time when the Queen's Festival was the only major date in the arts calendar in Northern Ireland but now other arts events in the capital city are competing strongly for the available business funding.
These include the growing West Belfast Festival and the Cathedral Quarter Festival.