Once-hot Film Roman stock takes a dive.

Last October, institutional investors were invited to shell out $10 a share to buy stock in a glamorous Hollywood animation company, one responsible for producing the best-known cartoon on television. "The Simpsons."

Almost five months later, they have seen the value of their investment plummet by about 74 percent.

As Homer Simpson might say, "Doh!"

North Hollywood-based Film Roman Inc. has the dubious distinction of launching the most disastrous public offering in L.A. County last year. While most other 1996 local IPOs have gained in share value since their initial offering, Film Roman stock has gone from its initial $10 a share to the $2.63 range, where it was trading last week.

Analysts blame the drop on the investors themselves, who bought a very risky stock at a price that didn't really reflect the company's true value. Instead, they said, the stock was really tied to the value of future assets that may never materialize.

"Animation is a hot area right now, but what makes it hot is companies like Disney that constantly chum out 'Lion King' characters. This is Film Roman. not Disney. There's a big difference," said Lloyd Greif, president of downtown L.A. investment bank Greif & Co.

Film Roman's reputation was built on the Fox network show, "The Simpsons," which has become the longest-running cartoon in prime time.

The company also produces such shows as "Garfield & Friends," "The Mask." "Bobby's World," "The Critic" and the recently launched "King of the Hill."

Founded in 1984 by animator Phil Roman, Film Roman was a rare success story for most of its history, one of the few independent producers able to carve out a substantial niche in an industry dominated by firms owned by such giant entertainment companies as Walt Disney Co. and Time Warner Inc.

But even before Film Roman launched its IPO last fall, there were signs of trouble. After steadily gaining in profits between 1991 and 1994, the company lost $1.7 million in 1995, according to documents filed with the Securities and Exchange Commission. It lost another $850,453 in the nine-month period ended Sept. 30, 1996.

The losses were caused by the same factor that prompted company officials to go public in the first place - a desire to change the way Film Roman does business.

Since its founding, the company was a "fee-for-services" TV producer, meaning it was essentially a contractor for the various broadcast and cable networks that aired its shows.

In fee-for-service deals, producers sell shows usually for about 110 percent to 115 percent of production cost, according to Film Roman Executive Vice President Bill Schultz.

As part of those deals, Film Roman sold the rights to the shows and characters to the networks - giving up potentially lucrative merchandising rights.

In recent years, however, networks have begun to offer less money for fee-for-service deals.

Although there are many more outlets for animated TV shows today than there were only a decade ago, the audience is fragmenting and decreasing.

Less kids are watching cartoons, lured away by interactive CD-ROM games and the Internet. Meanwhile, the launch of outlets like the Cartoon Network and Nickelodeon on cable has fragmented the audience, lowering market share - and thus advertising revenues - for the broadcast networks.

Film Roman officials decided that in order to expand, they had to own the rights to their own creations, Schultz said. Studios like Disney have made a fortune by exploiting proprietary characters in consumer products, video games, theme park attractions, books and other media. Film Roman wants to do the same.

But that process is expensive. Networks pay a licensing fee that only represents about 60 percent of production costs for shows they don't own, Schultz said, and Film Roman began losing money in 1995 when it started working on proprietary shows.

The $33 million in proceeds from the IPO are being used to pay down debt and finance production of proprietary cartoons.

Wall Street got a taste of the strategy's riskiness early this. month. One of Film Roman's first proprietary programs, "C-Bear and Jamal," was not renewed for next season by the Fox network. even though it was the top-rated show in its Saturday rooming time slot.

Film Roman's share price plunged 39 percent after that decision, which sources say may have been based on Fox's desire to air a show to which it owns all licensing rights.

Film Roman subsequently announced it would report lower than expected results for 1996 and reduced its goals for 1997.

Schultz said the lowered expectations are due mainly to the company's efforts to build an infrastructure for proprietary productions, not to the cancellation of "C-Bear."

"Any time a show is dropped like that, the property owners have the right to find another shelf for it somewhere else," Schultz said. "We are aggressively looking for other opportunities for 'C-Bear,' and people are interested. The program doesn't go away' just because it's rejected by one network."

According to Schultz. Film Roman has already signed licensing deals to exploit the C-Bear characters in consumer products, and he's confident the show will find another home.

But analysts remain troubled that Film Roman has yet to develop its own proprietary hit show.

"Phil Roman himself hasn't necessarily been the creative impetus behind some of the hit programs his company has been involved with," said David Davis, entertainment analyst at Houlihan, Lokey, Howard & Zukin. "Now he's got to prove to the market that he can get a hit."

Roman was unavailable for comment last week.

Complicating matters is the fact that many giant studios are buying up cable and broadcast networks and will likely give precedence to shows produced by their own partners.

In the end, analysts say it's far too early to tell whether its new strategy will ultimately prove successful.

"Film Roman has to make this big leap from being a job shop to being a Disney, and that kind of change doesn't happen overnight," said Greif. "I'm not saying I would bet against Phil Roman. It's just going to be a hard row to hoe for a while."