Ask Prof Nicholas Negroponte what issues are foremost in his mind as he looks at Media Lab Europe (MLE), the Dublin research lab founded at the end of 1997, and he is quick to reply, "the intellectual agenda and the business model".

Until recently, the former was uncertain outside of a broad remit to blend the arts, e-commerce and technology, while the latter was clearly defined: corporate sponsorship. MLE was to have the same general business model as parent institution the Massachusetts Institute of Technology's Media Lab, founded by him in 1985.

Now the agenda has clarified, while the business model is murkier. With the hiring of 75 full- and part-time staff and researchers, the intellectual agenda has defined itself, taking shape around the interests of the 10 people who will head the research groups. Intellectual territories will include palpable machines, mind games, human connectedness, future music, everyday learning, dynamic interactions, portable technology, story networks, speech technology, and one more area to be determined.

The old Guinness Hopstore, headquarters of MLE buzzes with a new level of activity and is filled with mostly young researchers. And, after a year of huddling on the light-filled top floor of the Hopstore, MLE has converted two more floors. Prof Negroponte beams over this small empire. "Now it has critical mass," he says, with some satisfaction. "The content here - the people, energy, themes - has actually surpassed my expectations."

But the exuberance of the economy and technology industry that reigned when MLE was conceived and launched has dissipated. That means the business model for MLE is in question, and even that of the hugely successful US Media Lab, with 170 sponsors meeting its $40 million (€43.7 million) annual budget.

"Clearly I did not expect the downturn in the economy," says Prof Negroponte. The situation for the telecoms sector, which makes up a significant proportion of both labs' sponsors, "is particularly brutal".

One of MLE's sponsors, 360networks, is in bankruptcy, causing MLE to lose its initial direct transatlantic cable link to Media Lab in Massachusetts.

Other supporters include Eircom, Ericcson and Motorola.

The severe downturn means that MLE may now receive as little as half its operating costs from corporate sponsors and will have to examine alternative funding sources, he says.

"MLE's got to change," he says. "The open question is how imaginative we can be in coming up with new business plans."

It is a blunt admission that is bound to re-ignite some scepticism - and the worries of some civil servants - that the lab might become a burden rather than boost to the State. But there has never been any indication that the facility intends to be anything but self-supporting.

Indeed, Prof Negroponte is well known for preferring to keep his US lab well clear of any dictats about what it may or may not do - the kind of thing that inevitably comes attached to significant government involvement.

Up to now, the lab had been running ahead of its own funding goals, pegged at £3.5 million (€4.4 million) this year, eventually reaching £10 million annually. But Prof Negroponte doubts corporate support will meet MLE's needs. He said MLE would examine new sources for support, such as EU grants, foundations and possibly other nations interested in supporting the lab's research.

The latter seems an odd proposal, unless you view it in the context of Media Lab's drive to establish Media Lab spin-offs besides Dublin. Japan's Media Lab Asia has just set up, and there had been talk of a Media Lab South America. Rather than having Media Lab pursue an ambitious programme of trying to open other labs, perhaps other nations would be inclined to sponsor existing ones - in a hands-off way.

Sponsors gain access to all intellectual property produced by both labs but do not dictate the kind of research the labs do. Little, if any, research at Media Lab is conceived as the starting point for commercial products or applications, an approach that has always made Media Lab a target of some criticism. MLE is intended to have a somewhat more practical bent, which has posed unexpected challenges. How is this to be accomplished?

One proposal was to have MLE become the anchor tenant of the State's proposed digital district in the Liberties. Yet the project has become mired in internal bickering within Government over funding and planning has moved slowly. Many people also confuse the district with MLE, believing MLE to be in charge of creating the district and blaming it for the lack of visible progress.

Prof Negroponte says he would be delighted to have MLE emerge as a focal point of the district, just as IBM Research became the catalyst for the growth of the famed Research Triangle in the US.

He argues the economic downturn does not mean people should tighten research budgets.

"Research is in fact even more important in hard times and government's role becomes even more important," he said.

He believes that tech-oriented people fall into three groups - those who suffered in the dotcom crash; those who pessimistically have an "I told you so" attitude; and optimists who nonetheless have been rattled by recent events.

He includes himself in the latter group of those who "have not in their lifetime, and I'm 57, seen a downturn like this, and then the events of September 11th. I've never seen that kind of crisis," he says.

"You combine all that, mix it in a bag and shake it, and you have the outlook we have right now. But it will swing back, and the worst thing to do now is cut back. You can't stop innovation; it would serve no purpose. While industry tries to lower its risk, government has to raise its risk."

One risk that he wants to take is setting up a new venture in Dublin to launch start-up companies emerging from MIT's Media Lab and MLE. The initiative, called Media Lab Ventures, will serve as an umbrella support company for spin-off companies from the two research labs. The Irish government would hold an interest in the venture, which was a potential part of the MLE deal negotiated between the State and MIT's Media Lab.

"Media Lab Ventures will bring MLE and MIT Media Lab projects to the next stage and literally start new companies in Ireland," says Prof Negroponte. He believes the venture could be under way by the end of the year but says it is only in its conceptual stage right now.

Such starting points seem to interest him most - spinning out ideas that might go anywhere but demand energy to get them set up.

He famously specialises in that kind of early motivation, relishing its chaos, by all reports leaving the hard slog of structure and administration to others. He doesn't seem to care - indeed he is well known for courting controversy and having an indifference to academic convention that drives some into a state of apoplexy but which has nurtured and defined Media Lab.

Not surprisingly, he is delighted, not apologetic, that MLE is just pushing itself out now after an unexpectedly long period of incubation as the lab "looked for the right people, with absolutely unique interests".

Right now, he grins, "is the fun part - the beginning".