-SR-

The " :setvar " only works in SQL command mode, within normal SQL execution in the management studio 
it throws the error > Incorrect syntax near ':' < 

Now, need to change the query window to SQLCMD mode and run the query.
ie: In SSMS menu items, Query->SQLCMD mode

/*
    Deployment script for master
*/

    GO
    SET ANSI_NULLS, ANSI_PADDING, ANSI_WARNINGS, ARITHABORT, CONCAT_NULL_YIELDS_NULL, QUOTED_IDENTIFIER ON;

    SET NUMERIC_ROUNDABORT OFF;

    GO
    :setvar DatabaseName "msdb"                                                             :setvar DSRDatabaseMailProfile "Production Hub (DSR ODS)"