COMPANY TOWN : Fox Heats Up the Animation Wars : Movies: Heavyweight Don Bluth discusses the deal that will bring him and Gary Goldman home from Ireland.

While Walt Disney Co. has proven repeatedly that animated films can reach the highest box office echelons, no other studio has been able to duplicate that success.

But with the potential payoff so huge--not just in ticket sales but in videos, merchandising and other areas--the major studios are embracing animation like never before.

In the latest move, 20th Century Fox announced earlier this week that it is investing $100 million in an animation division to be headed by veterans Don Bluth and Gary Goldman, who will leave the independent animation studio they set up in Ireland nearly eight years ago.

Bluth, in his first interview since the announcement, says the pair are looking to Fox for the kind of sophisticated scriptwriting and marketing that his company lacked. With the muscle of the studio behind them, he said, “I think we have a shot at being competitive.”

Bluth and Goldman have enjoyed success with films such as “The Land Before Time,” “An American Tail” and “All Dog’s Go to Heaven.” However, their most recent movie, “Thumbelina,” stalled at about $10 million, which Bluth blames on bad marketing.

One reason for optimism over the Fox deal is the involvement of newly installed studio President Bill Mechanic, a former Disney executive who built its video merchandising operation into one of the company’s most profitable businesses.

“Animation is potentially a great business,” says Mechanic, “but not a great business in and of itself. I don’t think we would have invested so heavily without a Don Bluth. Don and Gary are preeminent in the field.”

Mechanic also points out that Disney’s position in animated features was built up only over the past decade. “Nine years ago, when I started there, there wasn’t great success,” he says. “There was a great history.”

But Disney’s renewed commitment to animation enabled it to reclaim its former glory. Now, he believes, Fox can take a similar path.

“I would hope we would do the same thing with Don and Gary,” he says.

Under terms of their five-year deal with Fox, Bluth and Goldman will create a separate animation production company that will work under the newly formed Fox Family Films division.

No site has been picked for the as-yet-untitled animation studio, but it definitely will not be in California, Bluth says.

“I don’t like earthquakes,” he says, “and it’s too crowded with animation at present.”

He says the studio will be located somewhere in the western United States.

Bluth and Goldman will have a staff of about 200, the same as his company in Ireland. The new team will begin production on its first feature film in October, with a release target date of Christmas, 1996.

Bluth and Goldman will probably make a film every 18 months, which Fox will augment with work from other producers in order to release an animated feature each year, Mechanic said.

Although Bluth doesn’t begin work at Fox until May 31--Goldman starts July 15--he said he already has three projects in development for the new venture.

Bluth, Goldman and more than a dozen colleagues walked away from Disney in 1979, disappointed with its then-lackluster attitude toward animated films.

With financial incentives from the government of Ireland, they eventually created a studio on the banks of the River Liffey in Dublin. Since then, they’ve attained some success but also weathered some financial problems, including two bankruptcies.

Bluth is now an employee rather than an owner of the Dublin company that bears his name. Don Bluth Ireland Ltd. was taken over by Media Assets of Hong Kong, which was itself taken over by Rupert Murdoch’s News Corp.--owner of 20th Century Fox and its parent, Fox Inc.

Twentieth Century Fox President Mechanic says the fact that Bluth and Goldman are essentially moving from one arm of Murdoch’s empire to another had nothing to do with securing the pair.

When the Fox deal was announced in Ireland, newspapers there erroneously reported that Bluth’s studio would shut down as a result. In fact, says Bluth, the company is up for sale and considering offers.

The studio is completing work on the feature film “The Pebble and the Penguin.”

“I’m attached to Ireland,” Bluth says. “It’s an enchanting place. But it’s a time of going home.”

His homecoming coincides with a burst of animation activity in Hollywood. Warner recently hired Disney executive Michael Laney to head a new feature animation division, and MGM launched its MGM Animation division earlier this year. Will there be room in the marketplace for all of them?

“There’s only room for the good product,” Mechanic says bluntly. “I think most will fail.”