Don't Toon Out the Pioneers

The leaders of computer animation may not be flying these days, but in the words of Buzz Lightyear, they're falling with style. DreamWorks Animation (NYSE:DWA) isn't trading for much more than its $28 a share IPO two years ago, and a lot of people think that Disney (NYSE:DIS) may have overpaid for Pixar earlier this year. I don't see it that way.

I wouldn't drag you two paragraphs deep just to watch me nod my head. It's true that I had voiced my concerns two years ago, when a glut in computer-rendered product threatened Pixar and DreamWorks' ability to stand out in a crowd. But those fears have mostly subsided, and the two giants in theatrical CGI animation are still standing.

I realize that the timing of my optimism may seem ill-placed. Time Warner's (NYSE:TWX) Happy Feet has lapped the $100 million mark in total box-office ticket sales in just two weeks of screenings at a multiplex near you. I wouldn't dare come in and claim that the emperor penguins have no clothes. They're wearing tuxes, apparently. However, one success doesn't undermine the achievements of the two top dogs in this booming field.

Not bad, just drawn that way
In Travis Johnson's investing journal, he digs into the end of the animation duopoly in CGI. Johnson feels, perhaps the way that I felt two years ago, that there are just too many competing flicks coming out, and that the law of averages dictates that rival studios will get lucky every once in awhile.

Let's see how the computer-animated films put out by studios other than Pixar and DreamWorks Animation have fared this year.

An average of $68 million doesn't seem catastrophic, especially since Happy Feet has a few more weeks in which to pad that total. However, if we remove Ice Age: The Meltdown from the equation, because it was a sequel to an established hit property, the average drops to just more than $50 million.

Let's compare that with the $244.1 million that Cars rang up domestically for Disney's Pixar and the $155 million that Over the Hedge delivered for DreamWorks Animation this year. Can we even compare an industry that is batting somewhere around the Mendoza line with two original animation studios with pedigreed pasts?

"Nine of the top 10 computer-animation hits of all time are from either Pixar or DreamWorks," Travis writes. "Five years from now, I don't imagine you'll be able to say that."

He may be right. Both companies combine for just 13 of the 20 highest-grossing CGI theatrical releases. But I think that the two companies may own 15 or 16 of those slots in five years as they come out with more products, even if it means commanding only seven or eight of the 10 largest releases.

It may actually get better in the near term. Both studios will be back in a major way come next year. DreamWorks Animation has Shrekthe Third coming out in May. Disney has Pixar putting out Ratatouille come June. Both films will likely bump the only non-Pixar or non-DWA entry on the list -- Ice Age: The Meltdown -- from the eighth slot down to 10th. As strong as Happy Feet has started out, it's trending significantly lower than Cars did at the seventh slot on the all-time list.

Winning the war, one battle at a time
This doesn't mean that News Corp. (NYSE:NWS), Viacom (NYSE:VIA), and Sony's (NYSE:SNE) team-ups with smaller CGI specialists has been a bad thing. It's just that these kinds of deals, and the rare hits they produce, aren't going to dismantle the hit factories at DreamWorks Animation and Disney. Even with this year's deluge of slick animation, there are really only two companies putting out CGI flicks that kids covet and parents trust.

In the case of Disney, you can see increasing evidence of that enduring popularity right now in the company's theme parks. I just got back from spending Thanksgiving weekend in Disney World. The newest ride is a Finding Nemo-themed attraction in Epcot, and the next one to open will be a Monsters Inc.-fueled hoot in the Magic Kingdom. Disney's in-house fare was spotty and often unfit to build a themed attraction around. Now Disney is milking Pixar's fleet of characters to liven up its parks, and you can just sense that Ratatouille is going to be marketed extensively throughout Disney's various promotional outlets.

Yes, Ratatouille rat-themed premise may have some observers already nervous, given the lukewarm reception DreamWorks got with its outsourced Flushed Away. (As much as I love the U.K.'s Aardman Animation, this is now the second disappointment the studio has delivered under the DreamWorks label.) However, Disney is also a company that began with a mouse, and it's done pretty well by animated rodents.

Sorry, skeptics. This is no mousetrap.

DreamWorks Animation, Time Warner, and Disney are all Motley Fool Stock Advisor newsletter recommendations. Try David and Tom Gardner's flagship Foolish investing advice service free for 30 days.

Longtime Fool contributor Rick Munarriz loves the art of animated filmmaking. Yes, he owns shares of Disney. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.