THIS may be the most crucial year in the history of the Edinburgh Festival Fringe - a year in which its future could be consolidated or undermined, according to its director.

This week the Edinburgh Festival Fringe begins the first week of its 60th anniversary event, a month-long riot of theatre, music, comedy and dance.

More than 3000 performers took to the streets of the capital yesterday in a colourful cavalcade which signalled the start of the festival season.

But despite record ticket sales and the deserved title of the greatest arts festival in the world, director Paul Gudgin says increased competition from new British festivals and a series of changes in the Edinburgh festivals could challenge its hegemony this year.

However, his sounds of alarm could be considered unduly pessimistic - he has seen the Fringe sell more than a million tickets every year for the past three years, and it sold 1.3 million last year.

Next year one of the main rivals to the Fringe begins, a heavily financed international arts festival in Manchester, and it may impact on the numbers of people who want to visit or perform in Edinburgh.

In the next 12 months, at two of the Fringe's fellow festivals, the main International Festival and the Edinburgh International Film Festival, new artistic directors are being unveiled, each bringing their own vision of how to proceed.

And the Fringe itself has lost the world-renowned title of its main award, the PerrierAward for comedy. The award itself remains, but it now has a new name, the if. comeddies, which so far has failed to prove its appeal to comedians and the comedy industry, which in the past has eagerly monitored its winners.

Meanwhile, a landmark report into the threat posed to the future of Edinburgh's festivals remains on the desks of Edinburgh City Council and the Scottish Executive, with little sign of extra funding on the horizon.

Eleven of the capital's festivals are behind the joint report, entitled Thundering Hooves, which warns of rising competition to its pre-eminent position as the world's leading festival city.

All good reasons, Mr Gudgin says, for this festival season to feel particularly important.

"Actually I think this is the most crucial year I can remember for the festival, " he said.

"There are a number of things that are happening that make it feel like this could be a vital year not only for us but all the festivals in the capital.

"We shall see whether the recommendations of Thundering Hooves are picked up by the politicians or are left on the shelf.

"We shall see a new director at the International Festival [Jonathan Mills] and the film festival [Hannah McGill]. So people are going to see a lot of changes in those programmes - we are really entering a period of great change.

The Perrier award issue is another example of change - it's a question of how the industry reacts to the change, and we will have to see whether it still retains its profile."

The Thundering Hooves report warned that the GBP180m that Edinburgh's cultural festivals contribute to the Scottish economy annually is under threat from rival events in England, America, and the Far East.

The report called for increased investment from Edinburgh City Council and the Scottish Executive, and a bar on new festivals being launched in the city, to maintain quality.

Ticket sales at the Fringe are up on this time last year, but Mr Gudgin admitted the upwards trend in sales cannot continue forever.

"We feel that pressure all the time, it has been a year-on-year rise, apart from a dip in 2000, and so it is always in the back of your mind: 'is this the year when it will go down?' " He added: "I think this is a vital time for the arts in Scotland in general - we have yet to see the full fruit of the cultural commission - and there is an election for the Holyrood parliament next year when everything could change.

"But this is still my favourite time of year."

Spurred on by the dry weather yesterday, the cavalcade crowd swelled to more than 150,000, as people climbed vantage points to watch the parade progress along Princes Street.

A spokesman for Lothian and Borders Police praised the good-natured crowd which turned up for yesterday's cavalcade and said the event had passed peacefully. He said: "It was a major operation from a logistic point of view with the sheer numbers taking part, the large crowd, the military involvement and various road closures.

"But there have been no incidents and everyone seems to have enjoyed themselves."

The 31st annual cavalcade featured performers from both the Edinburgh Military Tattoo and also the world's largest arts festival, The Fringe.

It was headed by an impressive motorised procession including 85 Harley Davidsons and also the entire cast of the military tattoo, involving 280 massed pipes and drums.

David Todd, the event director, was delighted with the whole occasion. He said: "It was very impressive. The cavalcade marks the starts of Edinburgh's festival season and is always a great family occasion.

"Alot of people have said to me the acts were a lot more entertaining this year because the crowd are out in force to be entertained so I was very pleased with that.

"We were determined to put on a good show and it is fair to say we delivered. The crowd might have been a little down on what was predicted but it was still a huge turnout."

Among the 3000 participants in the cavalcade were performers from all over the UK, as well as Uganda, South Africa, Chile, China, Switzerland, USA, Korea and the Middle East.

The Edinburgh Festival Fringe runs until August 28.