Five years ago, Larry Kasanoff corralled one of his colleagues, put him in his car, and said, "We're going to drive around Santa Monica until we come up with an idea for a movie."

It turned out their inspiration was a supermarket. What if the products on the shelves all came alive at night after the people had left the store? The result is Foodfight!, and if you have kids, it's a good bet you'll be watching it next summer. (Sneak preview: Charlie the Tuna, Mr. Clean, and a host of other Madison Avenue characters battle a mysterious interloper, Brand X. And yes, the product placements are bought and paid for. Welcome to the future.)

But the movie's plot is less important than its business model. Threshold Entertainment, Kasanoff's shop, is just one of a bunch of ambitious new players trying to piggyback on the spectacular successes of Pixar and DreamWorks. They want to make computer-animated feature films for family audiences, too, but they're looking to do it on an entirely different scale: smaller, cheaper, faster.

In a way, like many savvy business types, they are opportunists. They saw a niche in the market, and they hopped in. The end result, however, could be something considerably larger--and rather disturbing for the old guard. "Contrary to what people think," says Kasanoff, "Hollywood is not an innovative place. It's the biggest sheep farm east of Auckland."

The game has changed profoundly since Ralph Guggenheim, CEO of Alligator Planet, another small animation studio in San Francisco, produced Toy Story for Pixar in 1995. For one thing, the technology for digital animation has gotten a lot cheaper--and better. A decade ago, Pixar had to hire techno-whizzes who wrote their own software to create computer-generated images with an unprecedented 3-D look. Each animator worked at a $50,000 computer workstation. Today, anyone can buy affordable 2-D and 3-D software packages such as Maya and

Softimage, which are taught to rising young talents in art schools everywhere. Guggenheim calls that off-the-shelf software the new "lingua franca" of animation. It's capable of creating the kind of visual effects that Pixar's brain trust could only dream of back in the early days--and it can do so on an Intel-Microsoft PC that goes for around $5,000 "and runs circles around what we had."

As Kasanoff puts it, "Animation is the only part of film production where quality is going up while costs are going down." What's more, kiddie cartoons are the sweet spot of the industry. While the average feature film produces $33 million in U.S. box-office receipts, the average for family films is $90 million. The figure is an astonishing $225 million for digitally animated films.

Janet Healy bet her career on this trend. As an executive at Industrial Light & Magic, Disney, and DreamWorks, she has worked with such Hollywood legends as George Lucas, Jeffrey Katzenberg, and Steven Spielberg. Now she works for a guy named Howard Jonas. He made his money in the prepaid calling-card business, and his company, IDT Entertainment, is in Newark, New Jersey, which sure ain't Beverly Hills.