1981–1985: Departure from Disney and early critical success
For The Fox and the Hound, Bluth animated several scenes of the character Widow Tweed. During production, creative differences between Bluth and studio executives had arisen concerning artistic control and animation training practices. On his 42nd birthday in 1979, Bluth resigned from the studio to establish his own animation studio, Don Bluth Productions, along with Gary Goldman, John Pomeroy, and nine fellow Disney animators. To this end, Don Bluth Productions demonstrated its ability in its first production, a short film titled Banjo the Woodpile Cat, and this led to work on an animated segment of the live-action film Xanadu. The studio's first feature-length film was The Secret of NIMH. Bluth employed 160 animators during the production and agreed to the first profit sharing contract in the animation industry. Though only a moderate success in the box office, the movie received critical acclaim. Later, with the home video release and cable showings, it became a cult classic. Nevertheless, due to the modest gross and an industry-wide animation strike, Don Bluth Productions filed for bankruptcy.
His next film would have been an animated version of the Norwegian folk tale East of the Sun and West of the Moon, but the financial resources were drawn back and it was never made. In 1983, he, Rick Dyer, Goldman, and Pomeroy started the Bluth Group and created the arcade game Dragon's Lair, an on rails game which let the player choose between simple paths for an animated-cartoon character on screen (whose adventures were played off a LaserDisc). This was followed in 1984 by Space Ace, a science-fiction game based on the same technology, but which gave the player a choice of different routes to take through the story. Bluth not only created the animation for Space Ace, but he also supplied the voice of the villain, Borf. Work on a Dragon's Lair sequel was underway when the video arcade business crashed. Bluth's studio was left without a source of income and the Bluth Group filed for bankruptcy on March 1, 1985. A sequel called Dragon's Lair II: Time Warp was made in 1991, but it was rarely seen in arcades.
An adaptation of Beauty and the Beast was also planned to be directed by Bluth in 1984, but the project was canceled by Columbia Pictures upon discovering that Walt Disney Pictures had plans for their own adaptation. In 1985, Bluth, Pomeroy, and Goldman established, with businessman Morris Sullivan, the Sullivan Bluth Studios. It initially operated from an animation facility in Van Nuys, California, but later moved to Dublin, Ireland, to take advantage of government investment and incentives. Sullivan Bluth Studios also helped boost animation as an industry within Ireland. Bluth and his colleagues taught an animation course at Ballyfermot Senior College.
