And there don't need to be performances at both theatres on the same night for a scheduling conflict to exist. When an opera is going on at the Royal for example, then the theatre is unavailable for the entire duration of the run, not just the nights that there is a performance.
I also think it is a bit oversimplified to treat the entire subsidy as a loss to the city, and to focus on ticketholders who are not from the City of Victoria as a negative thing. Performances at the Royal and McPherson bring people downtown, and result in extra revenue at other places, such as restaurants. Events like JazzFest bring people from out of province and out of country to the city, and result in a significant influx of revenue for the city, including restaurants and hotels.
There is really no point in advocating to make a city "vibrant" while ignoring the fact that arts and cultural events are pretty much the textbook definition of vibrant for many people. In my opinion, the discussion should not be about whether or not we need both the Royal and the McPherson, but simply about how to operationally run them better.