Cartoon boom hits Hollywood.

After a string of animated feature films fizzled at the box office in the 1970s, it looked as if the art form that Walt Disney developed would barely outlive Disney himself.

Don Bluth, who was then working as an animator on Disney films like "Robin Hood" and "The Rescuers," noticed a dispiriting gap between the studio's classic features and its more recent efforts. So, he said, did everyone else in Hollywood.

"What was happening was that the business community was beginning to treat animation like a leper," Bluth said in a recent interview.

How times have changed. These days, virtually every major studio is treating animation as a major player, either starting or reviving animation divisions and sinking millions into new features. With the Walt Disney Co.'s recent string of hugely successful animated features, capped by its blockbuster "Aladdin," industry insiders are pointing to a renaissance of animation.

"From our point of view, we've made quantum leaps in the technical quality of animation art, in terms of storytelling, music, all the way across the board," said Roy E. Disney, nephew of Walt and the current vice-chairman of Disney's board of directors. "From a creative point of view, more competition's good for everybody. It means more animators getting trained in the art."

Last month, Bluth and partner Gary Goldman, whose Ireland-based independent company produced 1989's "All Dogs Go to Heaven" and the recent "Thumbelina," agreed to lead a new animation division at 20th Century Fox Film Corp. Fox has earmarked an initial production budget of $100 million for its new animation division.

Bluth and Goldman said they are now in the process of selling their Ireland-based company. They also said the new Fox animation division will be located somewhere in the Western U.S., but not in Los Angeles.

Meanwhile, Warner Bros. recently hired a former Disney executive, Michael Laney, to head its new animated feature division, and Metro-Goldwyn-Mayer Inc. announced it is reactivating animation production after a hiatus of many years.

Industry executives attribute much of the activity to Disney's phenomenal recent success with "The Little Mermaid," "Beauty and the Beast" and "Aladdin." With these films, which combined a high level of artistic craftsmanship with broad commercial appeal, Disney proved that a new animated feature could easily generate more than $100 million in ticket sales. Now other studios want a piece of the action.

"Aladdin," in fact, has grossed $486 million worldwide, and the studio has collected millions more in licensing fees for merchandise based on the film.

The studio has maintained that momentum, as well, with its recent direct-to-video release of "The Return of Jafar," the sequel to "Aladdin."

Of the 8 million copies of "Jafar" initially produced by Disney, 5 million copies were sold in the first week, the studio reported. As of the beginning of this month, "Jafar" was the top-selling video cassette in the nation. Disney would not disclose the total revenues resulting from its blockbuster sales of "Jafar" cassettes. But if the cassettes sold anywhere near their $22.99 suggested retail price, "Jafar" in its first week delivered more than $100 million in revenues to Disney.

In addition, Disney's latest animated theatrical film, "The Lion King," which is scheduled to open June 15, is widely expected to be one of this summer's top box-office draws.

The high priority Disney is giving to its animation division is possibly best reflected by the major new animation building going up on Disney's Burbank studio lot. The building, scheduled to open this November, is designed to house all 1,000 or so Disney animators. Those artists are now scattered among four separate buildings in Glendale.

Despite the success, all is not well in Toontown. Increased studio involvement will likely make it harder than ever for independent animators to survive, according to Bluth. Disney's marketing power, combined with a possible glut of animated productions, could lead to a shakeout among the various competitors. And a number of animated films -- most recently, Bluth's own "Thumbelina" -- have performed far below expectations.

"If the subject is right, (animated) films can become very profitable," noted John Krier of Los Angeles-based Exhibitor Relations Co., which tracks box-office revenues in the U.S. and Canada. "But they have to have substance, the proper story line and the proper appeal."

Even so, the economics of animation have become increasingly favorable to major studios. While these films are labor-intensive and can take years to complete, the public's current appetite for them usually guarantees at least respectable box-office takes. In addition, successful animated features, unlike live-action films, spawn multimillion-dollar licensing agreements for T-shirts, toys and other product tie-ins.

"I'll take the average $20 million animated feature over the average $20 million live-action feature any day of the week," said Don Mirisch, an MGM executive vice president in charge of the new animated division. Mirisch said a big factor in MGM's recent decision to develop a sequel to "All Dogs Go to Heaven" was that the original film cost less than $15 million to produce, yet grossed $27 million in theaters and sold four million videocassettes.

Bluth, who created the "Dogs" characters, will not be involved in the sequel. The "Dogs" film and its characters are owned by Goldcrest Films and Television, and MGM has purchased the rights to the characters for its sequel.

Meanwhile, Bluth and Goldman this fall plan to begin producing an as-yet-undetermined animated feature for Fox, with a target release date of late 1996. As a longtime independent animator, Bluth said the deal with a major studio offered the enticements of stability and a sense of continuity. He can concentrate on the animation and let the studio take care of the rest.

"The only way to survive is to be associated with a distribution arm," said Bluth, adding that he moved his studio to Ireland to cut production costs. "We can produce the pictures, and now we'll have access to better stories, better writers, better scripts."

Bluth admitted he is still smarting over "Thumbelina," which drew mixed reviews and disappointing box-office results earlier this year and remains a stark example of how an animated feature can fizzle.

Bluth said the film cost $28 million to produce, yet grossed less than $11 million in the U.S., a result he blamed on Warner Bros.' lackluster promotion and distribution. Even high-quality animated features, he said, must be marketed properly.

"In selling movies, you have to create a thirst, a hunger to see a film," Bluth said. "You have to start making the public aware of the picture at least a year before its release. You put visual material into theaters; you talk about it on TV shows; you distribute fliers. There's many ways to mention it. I went out on tour to promote 'Thumbelina,' and people would say, 'What's that? I've never heard of it.'"

Bluth can expect greater commitment from Fox, which has made a long-term investment in animation with the new deal. Even so, Bluth and other sources predicted an eventual shakeout among the many studios vying for a share of the animation market. Animation's halcyon days may still be in the past.

"In many ways, we still haven't topped what Disney did with 'Pinocchio,' 'Snow White,' 'Peter Pan...'" Bluth said. "Our films (today) have a certain kind of slickness and an appeal to the popular mind; they're fast-paced, exciting and full of music, which is good. But I don't think all the (animation purveyors) will stay in the game. They'll have some big losses and they'll get out."