At the 2014 Helpmann awards, Baz Luhrmann was more than a little enthusiastic about the Australian musical (or at least his Australian musical). “I always think that the great thing is that an Australian production is standing next to a Lion King or a Les Mis,” he said. “The King and I – that’s a classic. These are classic commercial musicals and here’s all these Australian talents doing Australian numbers.”

But Strictly Ballroom was beaten in the big prizes by The King and I and another revival, Sweet Charity; perhaps not so surprising given Strictly’s mixed reviews.

Despite a huge marketing budget, Luhrmann’s adaptation of his popular 1992 film has had mixed success at the box office, too – Sydney’s Lyric theatre is packed most weekends but struggles during the week. It seems that no matter how much it’s talked up, the Australian musical struggles to compete, particularly against the classics or newer works that have been tested first overseas.

There aren’t many local musicals that have gone global in recent years: The Boy from Oz and Priscilla Queen of the Desert are the big two. Smaller shows like Metro Street in Adelaide and Once We Lived Here in Melbourne were picked up for international runs, but even many Australians will never have heard of them. Two original adaptations of American stories have faltered: Officer and a Gentleman closed early and the Broadway transfer of King Kong has been delayed for much-needed revisions.

Speak to anyone in the industry and you’re hit with pessimism. New works are “very hard”, says John Frost, co-producer of successful revivals of The King and I (with Opera Australia) and The Rocky Horror Show, as well as Officer and a Gentleman. “The next one next year will be the last one I do. Our country is not big enough for homegrown musicals.”

For the musical theatre actor Nancye Hayes, who has been in the business for more than half a century, nothing much has changed: “It’s never been easy to make new work – and work that has new music in it is even more difficult,” she says.

A recent promotional event celebrating four big musicals in Melbourne (Les Misérables, Wicked, The King and I and Rocky Horror) prompted Crikey critic Ben Neutze to bemoan that not one of them was new – leaving little cause for celebration.

The call for new Australian works is an admirable sentiment but a tall ask from commercial theatre. Only one producer, Global Creatures – the company behind Strictly Ballroom and King Kong – seems prepared to take the risk on large-scale original shows.

For John Frost, one of Creatures’ main rivals, new works are simply too expensive: “It’s very hard to sell them to investors and very hard to sell to the public.” Frost believes that it’s state theatre – the flagship companies in Sydney, Melbourne and Queensland – that need to pull their weight. “They should be told you have to do a musical a year,” he says. “It should be part of their repertoire.”

But Dean Bryant, who won a Helpmann for directing Sweet Charity and has co-written a number of small Australian shows, says that it’s a challenge for these companies too. A play is less risky. “All musicals, unless they are tiny musicals, have a big cast,” he says. And that means a large salary bill.

Bryant’s Once We Lived Here, staged at Melbourne’s 45 Downstairs in 2009, “is about as small as a musical can get”, with five actors and four musicians. But, as he points out, that’s still the cast of a large play. Bigger musicals require a cast of 25 and at least 14 musicians. Hence the reluctance of even the subsidised companies to produce them: “They have to make sure they can sell this to subscribers. These shows are very risky because they are going to cost a lot of money – and because we have never really developed new musicals here.”

Enter Sydney’s Hayes theatre, a rarity in Australian show business with a mission statement that focuses on musicals – both reimagined revivals and new works – and cabaret (Melbourne company Magnormos has similar aims but is significantly smaller). Sweet Charity played at Hayes, which is developing a new Australian work Beyond Desire set to open in November.

Nancye Hayes, the theatre’s namesake, will star and she is hopeful the venue will provide a much needed boost to the art form:. “Now there’s a home that’s going to specialise in musicals and new work can be submitted. I hope that makes a difference.”

Eddie Perfect, best known as Mick in Channel Ten’s Offspring but also the composer of Shane Warne: The Musical, says new work is difficult to promote. “The people who saw it really loved it,” he says of Shane Warne, which struggled in Sydney. “Creatively it was amazing, but between what the piece was and being able to communicate that, it’s a difficult sell. It nearly killed me.”

Australia’s certainly got writing talent: Perfect, Bryant and his creative partner Matthew Frank, Matthew Robinson and Neil Rutherford to name a few (the list is overwhelmingly male). And one of musical theatre’s brightest stars, Tim Minchin, is Australian, although notably he’s done the bulk of his work abroad. The Olivier and Tony award-winning Matilda the Musical finally opens in Sydney in 2015 – almost four years after its Royal Shakespeare Company premiere in Britain.

Australia is never going to have the equivalent of a West End (or “East End” as Melbourne’s theatre precinct hopefully rebranded itself). But with a smaller audience to satisfy, could it be time to aim smaller? Subsidised theatres failed to develop the likes of Shane Warne and Once We Lived Here (the creators of both shows were in talks with various companies but had to go it alone). Yet smaller musicals can make money: Casey Bennetto’s Keating! raked it in for Belvoir St, putting the company in a strong financial position before major renovations.

Contrast this with Global Creatures’ ongoing struggles with Strictly Ballroom and King Kong. Both have needed expensive revisions, but that shouldn’t be surprising. “Most of the musicals we get here have had years of preparation before they hit Broadway or go anywhere else,” Hayes says. “They need breathing space.”

Surely the risks of a small Australian work would be preferable to a larger gamble on an American story such as Officer and a Gentleman? Between the big state-subsidised companies, independent spaces such as Magnormos and Hayes, and commercial producers like John Frost, the resources must be found. Otherwise we’ll lose the talent.

“It’s a frustrating thing to be a musical theatre composer in Australia,” says Eddie Perfect. “If I want to stay in it, I can’t stay here. I have to get out.”