DREAMWORKS BUYS DIGITAL ANIMATION FIRM.

Byline: John Horn Associated Press 

The new DreamWorks studio, taking notice of the huge "Toy Story" returns, agreed Monday to buy 40 percent of computer animator Pacific Data Images for an undisclosed price.

The new partners plan to make a computer-animated movie by 1998. DreamWorks said it has a proposed script and has begun developing the movie with Sunnyvale-based PDI.

PDI is best known for its computer "morphing" effects on Michael Jackson's "Black or White" video and a sequence of "The Simpsons" in which a computer-animated Homer Simpson entered the real world.

Like Pixar Animation Studios, the makers of "Toy Story," PDI has made several short films, including the prize-winning "Gas Planet" and "Sleepy Guy."

"We have always been impressed with their ability and ambition in narrative storytelling," said Jeffrey Katzenberg, one of the three DreamWorks principals. "The (PDI) talent have a style and a skill that I think is going to be incredibly valuable."

Katzenberg, a former Walt Disney Co. executive who spearheaded "Toy Story" while at Disney, founded DreamWorks with director Steven Spielberg and record producer David Geffen two years ago.

DreamWorks says its first live-action feature film will be in theaters next year. The upstart studio's first animated feature, "Prince of Egypt," is due in 1998, as is the computer animated film.