Animation Company No Longer in ‘Toons : Television: Despite some successful shows, Zodiac Entertainment finds it is too small to compete in the cartoon production business. It will continue as a distributor.

Its British parent company pumped $35 million into the business over four years, and three of its cartoon shows made it ont U.S. television.

“Widget,” its cartoon about an environmentally conscious alien, was recommended for viewing by the National Education Assn. and was sold to 100 countries. But that was not enough to keep Zodiac Entertainment in the cartoon production business.

The Studio City-based company announced late in December that its effort to find a niche as an independent producer in the fiercely competitive animation world was over. From now on, Zodiac will only be a distributor--of its existing cartoon programs, and whatever distribution rights it picks up from other animation firms.

Meanwhile, Zodiac’s once enthusiastic co-founders, Peter Keefe and Brian Lacey, have left the company to start a new animation venture.

For children, the demise of Zodiac means no more new episodes of “Widget,” “Mr. Bogus” and “Twinkle the Dream Being.” For Zodiac, it is a stark illustration of the perils of battling the big animation studios.

“The business is nowadays very competitive . . . and it’s not a business Zodiac can play in,” said Kevin Morrison, Zodiac’s president, who remains with the company. “It’s simply not a big enough player.”

Even in its heyday, Zodiac was a small operation; in 1992 its revenue was only about $10 million.

Zodiac withdrew from production only a month after its parent firm--Britain’s Central Independent Television--agreed to merge with Carlton Communications, another U. K. entertainment concern.

But Morrison denied that had anything to do with Zodiac’s change of course. “This was a business decision,” he said. “It’s been building over a number of years.” According to Morrison, the business looked quite different when Zodiac was founded in 1989 by Central along with Keefe and Lacey, both animation veterans.

The late-’80s independent American TV stations had created great demand for syndicated programming. With such big producers as Walt Disney Co. and Warner Bros. still preoccupied with network TV, there seemed to be a niche for “boutiques” like Zodiac that could make cartoons for syndication.

The trouble was that the majors soon recognized the same opportunity. Once they had organized themselves to exploit it, they shoved aside the small producers in the quest for syndication dollars. “Disney merely had to announce they were going into that business and stations signed up,” Morrison recalled.

“Whereas Zodiac, which is a new and struggling company, said, ‘We’re going to do “Widget,” ’ and people said, ‘Who are you?’ ” Morrison said Zodiac succeeded in overcoming this credibility problem.

“Widget” is about a purple alien who goes around transforming himself into various characters helping to solve environmental problems. In 1990, Morrison noted, “Widget” played on 80% of independent U. S. stations and, the following year, it went to five shows a week. And he said during the May “sweeps” week of 1992, “Mr. Bogus,” a cat-and-mouse type cartoon, was the highest-rated weekly syndicated children’s show.

But Zodiac was having trouble getting what Keefe calls “on-Broadway” time slots--between 7 and 8 in the morning, and between 3:30 and 5:30 in the afternoon. “The reality is you have to have ‘on-Broadway’ time periods,” said Keefe, who was Zodiac’s director of production and strategic planning. “The number of children watching in those periods is quadruple that in other periods.”

One problem for Zodiac was its lack of advertising clout, Morrison said. For those prime slots, he explained, stations favor cartoon shows whose characters are also popular toys, or which are produced by big studios. It’s a lucrative payoff for the TV stations, because often the toy company guarantees to buy large blocks of their advertising time.

In true Hollywood tradition, it is often the deal that counts in animation, not the show. Zodiac’s shows “were perceived by broadcasters as nines or 10s as programs, but as business deals, they were fours,” Keefe said.

Other industry players said Zodiac could have found a way around such problems.

Jeff Segal, president of MCA’s Universal Cartoon Studios, suggested that the company could have worked like a subcontractor. If a studio wished to make a cartoon based on a toy or a comic strip, they could turn to Zodiac rather than going in-house. “If the fifth network goes ahead, and assuming CBS and Fox and the others stay in the animation business, there’s always going to be room for small boutiques that take in a project they may not have originated,” Segal said.

Ken Spears, vice president of Ruby-Spears Productions, another animation independent, pointed to the example of Film Roman. The North Hollywood studio helped get the idea to take the popular comic strip “Garfield” and turn the mischievous feline into a hit TV cartoon, with toy company advertising galore.

“They got hold of a popular character,” Spears said. “They’ve been very successful and been able to continue based on a not very large volume of work.”

According to Morrison, adopting such strategies would mean betraying Zodiac’s philosophy of putting programming first. Going “cap in hand” to the big toy companies, he said, “we regarded that as a prostitution of program-making.” He added: “Temperamentally, as a broadcaster, (Central) wants to make programming for programming’s sake rather than because of the advertising tie-ins. They simply decided it wasn’t the sort of game they wanted to be in and they would retire.”

Despite that retirement, Zodiac intends to remain an active player by distributing its existing cartoons and shows it will acquire from others. Morrison said Central’s merger with Carlton--whose Hollywood interests also include Technicolor Inc., a film processing company, and Complete Post, a large post-production facility in Los Angeles--will help Zodiac expand its distribution business.

“Widget,” he predicted, will be around for many years as the purple alien character appeals to new generations of children. “The proof of all of this will really be how many of the shows that are in syndication this week will also be in syndication in 10 years’ time. I bet you ‘Widget’ is.”

As for Keefe and Lacey, they may end up proving the current conventional wisdom on how small boutiques can prosper in the current animation market. The partners have an idea for a new series called “Power Animals” that is based on the 12 characters of the Chinese zodiac.

And they hope to market it to stations in conjunction with a toy company.