Somewhere in the world, at this moment, a ten-year-old child is guiding a small, digital penguin around a cartoonish online world that looks a bit like cross between an arctic village and an amusement park.

He or she may be considering getting a new cape for the penguin, or redesigning its igloo with penguin furniture, before playing one of the many games in the world, Aquagrabber, which involves flying over the skyline collecting pieces of treasure from shipwrecks.

Or the child could take the penguin's pet - a small, brightly coloured creature with no legs known as a 'puffle' - for a walk with its friends.

The features of Club Penguin, one of the most successful virtual worlds aimed specifically at children, may defy logic - and gravity - but they represent the new frontier of children's entertainment, where the whimsy and colour of traditional kids TV blends with computer game-style tasks, and the networking power of the internet.

Some 750,000 British children aged between 6 and 14 are estimated to inhabit Club Penguin, the brainchild of two Canadian entrepreneurs who as parents became frustrated with the lack of the options for kids who wanted to play computer games but also meet friends online.

Lane Merrifield and his colleague Lance Priebe, both Canadian, were looking for sites that their six-year-old children may be able to join, but found that there was nothing in between the likes of MySpace and Facebook - which were "aimed at grown-ups", and web-based computer games, which catered for only one person at a time.

The boss at the web production company where they worked agreed that the idea of a social networking for kids was worth developing. They chose the penguin motif - for no particular reason, apparently, though according to one version of events it was because penguins were easier to animate than humans - and in 2005, the first incarnation of Club Penguin went live.

Since then the world, which is free to join, has grown exponentially. The Club Penguin site is now supported by 200 mostly Canada and US-based employees, and in August last year it became the latest 'new media' company to be snapped up by an old one when it was bought by Disney in deal that could be worth as much as $700 million.

Mr Merrifield, 29, who is estimated to have netted about $115 million from the sale, says that he said he had "great cynicism" heading into the talks with Disney, but that despite the large sum paid, Disney is not applying pressure to increase subscriber numbers, and he and his co-founders are free to develop the site as they have been.

"The way we see it, we'd come to a crossroads where what we wanted to do creatively was outpacing our infrastructure. We could either have taken a couple of years to build it out, or find a company with that infrastrcuture (which was Disney). We saw it like we were sending our kid off to college."

The site - which also offers a premium service for £3.95 a month - is presently focused on adding localised features designed to appeal to users in specific countries. Hence a trip to the UK to open a new Brighton office, which will house 11 staff - mostly 'community support' workers who answer questions posed 'in game' by the kids, and a writer who will adapt some of the game's terms.

British kids will soon be able to have their penguins snack on 'tea and scones' - instead of coffee and croissants, wear wellies, and enjoy festivities on Guy Fawkes Night.

Catering for local sensibilities is just one of the many challenges of a rapid global expansion, however, which Mr Merrifield admits is giving the team "many sleepless nights." One of the most innovative aspects of the site is its subscription-based business model, which has enabled it to remain completely free of advertising.

The monthly fee entitles the subscriber to a range of benefits - including different types of outfits and a greater range of igloo furniture - that other penguins can't have, but in a neat twist, the fee alone doesn't translate to ownership. The subscriber still has to perform the tasks which earn them coins. Once the coins are earnt, they are worth more than they are to non-subscribers.

This, Mr Merrifield says, distinguishes the site from other virtual worlds aimed at kids which operate on the so-called 'micro-payment model', where all manner of virtual goods such as clothing can be bought for small fee each, usually less than $1.

"We didn't want to create a system where the rich kids get the cool things and the poor kids don't," he says.

The site prides itself on its learning features - part of a drive to align it with parents' interests as much as with those of kids. Reading a book in Club Penguin, for instance, is interactive: kids help determine the plot of the book as they go along in an exercise that is part choose-your-own-adventure novel, part cartoon channel, and part typing lesson.

Safety is also a priority. A range of filtering controls that prevent the exchange of any information of a personal nature - names, addresses, school names, phone numbers - mean that so far the site has not to report any "incident". The management has been invited to speak at an FBI convention on child safety every year since it was set up.

The site faces strong competition from a range of free sites. Stardoll.com, a fashion-focused site aimed at young girls, has 450,000 UK users, according to Nielsen Online, and Habbo Hotel, which advertises itself as a 'hang out for teens', has 390,000.

But Mr Merrfield is confident Club Penguin can continue to offer a 'point of difference'. "I think ultimately if you can create a compelling enough service which differentiates itself from others, then you can find someone who's willing to pay for it," he says. "Our challenge it to constantly create a better experience than you find on other sites."

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