The failure of NIMH was a blow to Don and his followers. Don was disappointed, but simply put more energy into his next project. Even more hope now hinged on their second feature, EAST OF THE SUN, WEST OF THE MOON.

Prior to the release of NIMH, Don discussed his proposed second feature in a Canadian interview. "The next picture we're doing is a modern-day fairy tale, but it's based on a very old fairy tale. It's Norwegian, called EAST OF THE SUN, WEST OF THE MOON. And the old fairy-tale is very convoluted -- it has a lot to do with a prince and princess, of course. The prince is enchanted and he's a polar bear. And the polar bear talks to the princess and says, 'You must never look upon my face, because if you look upon my face, I'll be whisked away somewhere, and you'll never see me again.'

"So she sneaks in through his bedroom in the middle of the night and lights a candle to look at him, because he's in mortal form at night. Consequently, the curse is complete and he is thrown into some land that lies East of the Sun, West of the Moon. And she has to rescue him.

"Now the story that we're telling takes place in the future, about the year 2500, and it has much the same elements in it, except it's about a young boy and a young girl. She gets the boy in trouble in much the same way. He is discovered - he's a fugitive from another world. He is discovered because of her, and is taken away to be put to death, and she sets out to rescue him.

"It has some fantastic visuals in it, too. We go down to the lost city of Atlantis in one sequence; how she journeys to this land East of the Sun, West of the Moon is on the back of the North Wind, so it has, I think, some beautiful things in it."

Unfortunately in August of 1982 the animation industry was hit by one of its most devastating strikes since the famous Disney strike of the Forties. Considered by many a "showdown" between the major studios and the union, the strike lingered for several months. The union tried to curb runaway (foreign) production, mostly used for Saturday morning and syndicated series. The major studios tried to weaken the general union contract. In fact, after the strike was finally settled, there was no more "standard" union contract as each studio had customized contracts. (Union workers finally went back to work in late September, many with contracts to be negotiated at a later date.)

Work stopped on several projects. Besides Bluth's EAST OF THE SUN, Disney's MICKEY'S CHRISTMAS CAROL and Welcome Entertainment's ZIGGY'S GIFT were affected. Picket lines were set up in front of the major studios, with the line of strikers in front of Disney getting plenty of TV coverage.

Frustration soon became the key word of the strike. Animators, who were generally the higher paid professionals in the business, felt that only the inkers and painters had voted for a strike. The union continually had trouble getting the studios to show up at the negotiation talks. The studios stood firm that they would not negotiate such things as salaries and benefits until the "runaway" clause was addressed. The networks added fuel to the fire by stating they would allow the Saturday morning shows to be delivered late.

In this hostile climate, picketing became so hot that one ex-Disney employee threw an object at Disney head Ron Miller's car. The Union then restricted picketing of studios to "current" employees of that studio. At least one union meeting almost resulted in a fight when one studio's employees demanded they be allowed to go back to work.

The Bluth studio realized that the strike could go on forever, and began negotiating on their own. Don tried to convince the union and public that feature animation was different than Saturday morning and deserved a separate contract. With the promise of feature work, Bluth's representatives offered a contract with less of a wage increase but guarantees not to send any work overseas. Another Bluth contract offered featured another lower wage increase than the union wanted, but promised to share profits with employees.

In the midst of this labor unrest, Don desperately tried to keep his group going. Backers of the second feature were now worried that if the strike lingered too long, Bluth would be unable to finish the film in time for the planned release.

The Bluth artists signed a petition stating that they would accept the current offer from Bluth and sent it to the union. Artists and management from Bluth began hinting that if no agreement were completed soon the studio and artists might withdraw from the union. On Tuesday, August 31st, 1982, Don stated "If everything goes well" a pioneering contract could be signed and production might start the next Monday.

After some more negotiation, the union and the Bluth studio signed a contract. Later that same week, The Hollywood Reporter headlined the story "Hollow victory as Bluth, 895 [the animation union's local number] reach landmark union accord." The story told of how the two parties had reached agreement on a contract that "marks the first profit participation between union animators and a producer."

What made the victory hollow was that with the signing of the contract, Bluth's financial backers felt the next feature would be too expensive and withdrew their finances. Disappointed, Don stated, "we don't know if there are others waiting in the wings to help us out."

Finally, it appeared that there were no ready backers. Don had a contract and a studio. He just didn't have any money or productions.

Just as PETE'S DRAGON was a critical point in Don's decision to leave Disney, the strike of 1982 forever put a damper on the relationship between the local animation union and a Bluth studio. Don frequently spoke of the problem and how the union would rather "fight for a dollar than see the industry survive." NIMH had employed over 150 animation workers. EAST OF THE SUN would have employed even more. In Don's eyes the union's stubbornness destroyed not only his studio's dreams, but the jobs of all those artists. One of Don's employees angrily joked that all the studios might shut down, but the union would continue on forever.

In September of 1982, the studio opened a commercials division in hopes of getting work. The first job was a Lincoln- Mercury commercial. Don and his skeletal crew animated a metallic cougar melting. It was more of an effects job than the classical animation Don had hoped to do. The spot aired in October of that year.

Upon announcing the commercial division, Don tried to keep as positive a face as possible. A press release stated "Bluth, formerly only a feature animation producer, said the creation of the new division is part of an overall master plan of his to 'advance the art form of the animated feature film.'"

The release stated that the studio was still working on the development of EAST OF THE SUN, WEST OF THE MOON. (During production of the videogames, Aurora would request all the artwork created in development of EAST.) Don was quoted as saying "The independent producer of animation is going to have to diversify to cushion the rising costs of his animated features."

As Don and a few loyal followers continued trying to get projects going, pickings got slimmer and slimmer. Along with the low box office receipts of NIMH, other promised animated features, such as THE PLAGUE DOGS and TWICE UPON A TIME could not even find a U.S. distributor. Others, like HEIDI'S SONG and AMERICAN POP did even worse at the box office than NIMH. It looked like the renaissance of animation was over as quickly as it had started.

However, if animation wasn't hot, it wasn't alone in that situation. The videogame was also facing some hard times. The bouncing dot of Pong had grown into a giant industry fed on the quarters of players of all ages. The machines offered simple (by today's standards) computer graphics, which were often hard to decipher. While some companies had made fortunes on it, by 1983 the market was slowing down. Major companies announced they had lost millions and were closing down. Atari, the home video king at the time, saw revenues falling. An article in Time estimated that one-fourth of all video companies would go out of business. It was estimated that half of the arcades in the country would close before the year finished. All parties hoped another game might come along to increase interest in players.

At this time, Rick Dyer, a game developer, was trying to promote an interactive laser disc arcade game. He planned the game to be played like a movie where the player could change the story at certain points and branch out into various subplots. Not a totally new idea, theaters featuring "participatory movies" had been used for decades at various World's Fairs and Expos. But to date no one had narrowed it down to a single player concept.

When Dyer met with Bluth's team, he had already located a company in San Diego that was willing to manufacture the game, Cinematronics (which had already filed bankruptcy due to the failing game market). All Don needed to get into the deal was supply the animation... for free! Sensing that this could be the kick his staff needed to keep going, Don and his two partners agreed. A new business, Bluth Group, was formed.

Don later stated, "It was a dinghy to a sinking ship. We didn't have the money to do another movie. We didn't even have the money to do the game!"

Eventually Don found an investor who loaned them $300,000. This was enough to prepare a five-minute test. Cinematronics built a prototype game and showed it to the gaming market in April of 1983. All who saw it were astounded. Video Week quoted a 3M executive who thought that, because of the game, the industrial side of lasers, "is going to explode" in 1983

Bluth Group received another $1 million for the home gaming rights from Coleco (a major home gaming system of the time). That was enough to finish the animation. Dyer (as RDI), Cinematronics and Bluth Group formed Starcom, to produce the games. (The name was later changed to Magicom when it was discovered that Starcom was already owned by a firm in the East.) The actual agreement between the three parties would become key to the financial status of the Bluth Group in 1984.

In total secrecy Bluth and a skeleton crew worked night and day to finish the film. So cut throat was the game industry that no one could know what was happening. Clearances had to be signed by anyone walking into the building.

The animation was finished in May of 1983 and the game DRAGON'S LAIR debuted in June. Overnight a new industry was born and Don again found himself in the media spotlight. In a few short weeks the game made more money than NIMH had in a year of release.

Don did not really see the games as a new direction, but merely a stop gap. He felt that the success of the games would become a steady form of income that would support his work on animated features. Just as Disney used amusement parks to help support their film making, Don and his crew thought that the video games would give them permanent capital.

During this period, Don won new legions of fans and debuted his Don Bluth Animation Club. Membership quickly grew as more and more fans wanted to follow the adventures of Dirk the Daring, discover a film called THE SECRET OF NIMH, and see what Don would come up with next.

Seemingly, nothing could stop the Bluth Group now.