VIDEO : IN SEARCH OF A HAPPY 'TOON ENDING.

Byline: Robert Bianco Special to the Daily News

The people who are really shaken up by the less-than-heroic box-office performance of ``Hercules'' don't work at Disney.

Disney, after all, still will make money from ``Hercules'' - not as much as the studio or most observers had expected, but a significant amount nonetheless. If nothing else, Disney can afford to be patient: Anyone who doesn't buy ``Hercules'' now will get plenty of chances later. Or hadn't you noticed how well the video release of ``Fun and Fancy Free'' was doing?

The studio's competitors, however, may have more trouble taking the long-term view. Fox and DreamWorks, to name two, have invested hundreds of millions of dollars in start-up animation studios for expensive musicartoon projects such as ``Anastasia'' and ``Prince of Egypt.'' Suddenly, it looks like they may be producing product for a market that's already had its fill.

Even when the cartoon market was hot, this rush to challenge the Disney dominance was always a risky business. With the exception of the decidedly un-Disney ``Beavis and Butt-Head Do America,'' none of the studio's competitors ever has found a consistent way to make money from full-length animation.

The latest and most conspicuous failed cartoon attempt was Turner Animation's ``Cats Don't Dance'' (1997, Warner; $22.96), a pleasant and generally well-reviewed film that even dogs ignored. Now Turner will see if there's a video market for ``Cats,'' now and forever.

Produced by David Kirschner (``An American Tail'') and scored by Randy Newman, the movie is an oddly timed spoof of '30s musicals, with the cats and their other animal friends being kept out of show business by a Shirley Temple-like diva named Darla Dimple. As in the old Warner Bros. cartoons, the characters mix with such stars as Bette Davis, Mae West, and Laurel and Hardy - a joke that had better be aimed at adults, since kids are likely to be clueless.

Kids, of course, have always loved Warner Bros.' Bugs Bunny cartoon classics, and they're littered with inside, adult-only jokes. With ``Cats,'' however, the entire central conceit should be a mystery to a generation whose main exposure to musicals has been through Disney's cartoons. Kids know cats dance; it's dancing humans that would surprise them.

Even so, anyone looking for an animated alternative to Disney would be better off with ``Cats'' than with Warner's other cartoon offering, the indifferent direct-to-video sequel ``Swan Princess: Escape From Castle Mountain'' (1997, Warner; $19.96). The only real question is what will annoy the target preteen girl audience more: the sexist story (the only thing important to the women in the movie is the Prince's habit of forgetting social events), or the animators' inability to make the characters' mouths move in sync with their voices.

Warner Bros. isn't the only company on the video cartoon front. Universal is releasing a collection of its new ``Casper'' television cartoons under the title of ``The Spooktacular New Adventures of Casper'' ($12.98).

The cartoons are coming out now to lay the groundwork for Universal's bigger project: ``Casper: A Spirited Beginning,'' the live-action, direct-to-video sequel to the studio's big-screen hit, ``Casper.'' The new ``Beginning'' is due out Sept. 9 for $19.98.

If that doesn't do well, the studios are really going to get scared.

Elsewhere on video:

Here's more bad news for Disney's competitors. Odds are the best-selling kids video this week will be the rerelease of one of Disney's most beloved classics, ``Mary Poppins'' (1964, Disney; $22.99). The movie returns from one of those Disney demand-creating moratoriums restored, THX-certified, and packaged with bonus ``backstage'' footage and a commemorative songbook. Beautifully produced and marvelously acted, ``Mary Poppins'' remains one of the best family movies ever made.

The week's other big video gun is Fox's release of George Lucas' ``Star Wars Trilogy Special Edition'' ($49.98). These ``special editions'' are the reworked, remastered films that made such a hit in theaters this summer.

Though it certainly was a pleasure to see the films in theaters again, that doesn't necessarily mean you should spend more money to bring them home - particularly if you already own the remastered ``original edition'' ``Star Wars'' set Fox released last year. If so, you'll be spending $50 for some marginally improved special effects and for additional footage that ranges from distracting (all those new animals golumphing around in the background) to redundant (an unnecessary early scene between Han and Jabba). Unless you're planning to invite Lucas over for a screening, I'd stick with the originals.

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Photo: With one exception, no studio ever has found a consistent way to make money from full-length animation. The latest and most conspicuous failed cartoon attempt was Turner Animation's ``Cats Don't Dance.''