FLEDGLING STUDIO SPREADING ITS WINGS; DREAMWORKS HOPES `CHICKEN' WILL FLY.

Byline: Dave McNary Daily News Staff Writer

Hollywood's animation war heated up Wednesday as upstart DreamWorks SKG committed to co-financing and releasing ``Chicken Run,'' a full-length comedy from the industry's leading clay-animation producer.

DreamWorks, which has committed to four other animated movies, will team with French distributor Pathe on the Aardman Animations project but gave no release date. ``We haven't even started production yet,'' a spokeswoman said.

``Chicken Run,'' starring a flock of birds trying to escape being fried and fricasseed, will be directed by Nick Park and Peter Lord and produced by Park, Lord and David Spraxton at Aardman's studios in Bristol, England. Aardman has won three Academy Awards for Best Animated Short in recent years for ``Creature Comforts,'' ``The Wrong Trousers'' and ``A Close Shave.''

The announcement comes with studios scrambling to end Disney's domination of the cartoon business. Feature animation upstart 20th Century Fox has scored a moderate success with ``Anastasia'' taking in $31 million in its first 10 days; Warner Bros. is preparing ``The Quest for Camelot'' for release in May; DreamWorks will roll out ``Small Soldiers'' and ``Prince of Egypt'' next year.

Disney's animated entries for next year are Chinese folk-tale ``Mulan'' and its computer-generated ``A Bug's Life'' and DreamWorks is planning ``Antz'' and ``Shrek'' for 1999.

Analyst Arthur Rockwell of Yaeger Capital Markets said the public's taste for animated product is not unlimited. ``The audience may wind up getting fairly saturated next year,'' he said. ``My sense is that none of the new players in feature animation are going to get rich fast.''