The lion is no longer king of the animated jungle. The top cat has been deposed by a tiddler in the Hollywood pond, a colourful clownfish named Nemo. All this jostling for position among the film world's creature features has brought into focus the supremacy of the new generation of animators producing computer-generated movies rather than traditional hand-drawn cartoons.

The roar of Walt Disney's The Lion King was silenced this summer when Pixar Animation Studio's Finding Nemo, a fishy family tale set under the sea, overtook it to become the highest-grossing animated movie ever in the US.

This victory of new over old technology gave added ammunition to Pixar executives negotiating a new deal with the House of Mouse, which has distributed Pixar movies since 1996.

A straight run of five hits - A Bug's Life, Toy Story, Toy Story 2, Monsters Inc and now Finding Nemo - has led to Pixar being labelled "the most reliable creative force in Hollywood" with films that are both critical and commercial hits. Its first four features grossed an amazing $1.73bn dollars between them.

Pixar has two more films to deliver to Disney before its current contract runs out. In the future, they're bound to want a better financial deal, while Disney will be reluctant to lose such a valuable asset.

The third player in the animation game is DreamWorks, the US studio set up by director Steven Spielberg, record producer David Geffen and former Disney boss Jeffrey Katzenberg.

They had a big hit with the computer-generated Shrek, and less success with the more traditional Spirit: Stallion Of The Cimarron and this summer's Sinbad: Legend Of The Seven Seas. The later virtually sank without trace as live action blockbusters and Finding Nemo raked in the money. Earlier this year, Disney's own Treasure Planet failed to draw the kind of huge audiences that the company's cartoon features used to and put a question mark over the future of the genre.

The success of The Lion King, Beauty And The Beast and The Little Mermaid - made at Disney during Katzenberg's reign - heralded a renaissance in animated features. Other studios, spotting the chance for making big bucks both at the box office and through merchandising spin-offs, jumped on the bandwagon to form their own animation studios. Disappointing responses to films including Titan AE, Anastasia, The Magic Sword and The Iron Giant led to both Warner and Fox abandoning their cartoon units.

While Academy Award organisers recognised the importance and growth in the genre by introducing an Oscar for feature-length animation in 2002, audiences seemed to be less interested. Partly this resulted from cartoon overload as Disney flooded the market with straight-to-video sequels to cinema hits.

Pixar came to its rescue with its pioneering computer animated technology. The success of Nemo and failure of Sinbad doesn't spell the end for traditional animation. The two are likely to exist happily side-by-side for some time to come.

Sinbad, for instance, was a mix with backgrounds mainly computer-generated and humans were hand-drawn. Computers have yet to fully master "drawing" realistic human characters. "There's a kind of subtle animation acting you can only get out of pencil and paper," says Sinbad co-director Tim Johnson.

Those who view computer animators as techies first and animators second have got it wrong. The unique set-up at Pixar's San Francisco base, where it employs 600 workers, helps account for its consistent success.

Film-makers put the accent on story-telling. There are no executives or money men giving notes, just a bunch of people who can ignite stories and a genuine family feel about the place.

As Pixar's people have said on more than one occasion: the story is king. The characters may not be human but the adventures and emotions they experience are recognisable to everyone. Hence, the universal appeal to young and old alike. That feeling is reinforced by talking to Andrew Stanton and Lee Unkrich, two of the prime movers behind Finding Nemo. They go with their own feelings rather market surveys.

They also don't take success for granted. They knew the summer blockbuster season would be tough, especially with the release of Finding Nemo sandwiched between two hotly-anticipated movies, The Matrix Reloaded and The Hulk.

Pixar projects are story, not technology led. When director and co-writer Stanton first came up with the idea of a film set underwater, he had no idea if the technology to achieve those effects existed.

"I've always been afraid and interested by being underwater. That attraction and fascination is still there now, and I'm in my thirties. So it has to be pretty universal," he says.

"I committed to the film in late 1999 and couldn't care less whether we had the technology to do it. I thought, 'we'll figure it out'. It was a case of the quality of the idea motivating the technological breakthrough."

Being based away from Hollywood, Pixar people can concentrate on the job in hand without interference although, obviously, there's the strain of continuing their winning streak. "That kind of pressure has always been there," says Stanton.

"But we're not in LA and not bombarded by people outside telling us how great we are. We realised that what made Toy Story so good was making something selfishly that we wanted to do. We've had to find a way of recreating that environment."

Pixar isn't afraid to own up to mistakes. Several features underwent revision because the makers didn't feel they'd got it quite right. "It takes five years to make a movie, so it's really easy to lose objectivity after you've seen the same job 500 times. We've always trusted Disney to be those objective eyes. We can go down and ask them, and have test screenings," says co-director Unkrich.

It will be interesting to see what happens if Pixar and Disney do split up, although Stanton hopes that doesn't happen. Any problems the two companies had were sorted out in the days of Toy Story, he says.

"There are no issues at our end. It's all about money and ownership, and we keep out of it," he says. "I hope they make it work out because I think we make something better together rather than apart. Everyone is nervous about what the unknown would be like."

Pixar can expect stiff opposition when DreamWorks releases Shrek 2 next year. That company is also backing Britain's animation efforts by a five-picture deal with Wallace and Gromit creators, Aardman Animation.

Chicken Run, the first film under the deal, proved a hit on both sides of the Atlantic. Now a Wallace and Gromit feature is in production at Aardman's Bristol studios.

The comedy duo's creator Nick Park has no intention of abandoning old-style methods for computer technology. Plasticine is still the choice of this triple Oscar-winner for his short films.

"It's the beauty of plasticine animation that you can make them very human by manipulating them frame by frame," he explains. "Plasticine gives you a very organic, subtle human feel which is really important for the audience to empathise with."

* Finding Nemo (U) is showing in cinemas now.