Councillors in Scarborough will discuss plans to demolish the Futurist Theatre on 9 January.
Campaigners told a public meeting on Thursday they planned to form a charitable trust to run the theatre, which closed in 2014.
Scarborough Borough Council has not commented on the proposals.
The Conservative-run council's cabinet has previously judged the Futurist is not sustainable as a theatrical venue.
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Adam Flynn, a Save our Futurist campaigner, said the venue could host large-scale musical productions.
He said: "If it was brought up to modern standards to allow these shows to come, then we could see huge economic benefits."
He added the group would need 12 to 18 months to allow it to raise around Â£40,000 to carry out a full feasibility study and develop a business plan.
Reports to be considered by the council on 9 January said that if it does not approve demolition costs of Â£4m, the building will remain in its current state of repair.
Only minimum repairs would be carried out in the future to ensure compliance with health and safety requirements, council officers warned.
The council plans to clear the site and stabilise a cliff behind the theatre to allow the land to be made available for redevelopment.
Flamingo Land, which is a large visitor attraction in Malton, North Yorkshire, has already expressed interest in developing a new year-round tourist attraction on the site.
Campaigners attempting to save a 1920s' theatre threatened with demolition want a "stay of execution" to come up with a business plan.