On Monday, DreamWorks will formally enter this crowded realm with Kung Fu Panda World, a $10-million website that will allow children to play elaborate games, chat with friends, learn kung fu styles and get a pet. The site, which has taken two years to develop, is centred on the company?s hit movie Kung Fu Panda, which had $632 million in global ticket sales in 2008.

Membership will cost $5.95 a month ? on par with other virtual worlds for children ? although DreamWorks has also devised a free option: children can play free for one day if they watch a 15-second ad. A player can come back day after day with this option, but membership is required to unlock more advanced settings. Kung Fu Panda World is aimed at children aged between eight and 12 years.

DreamWorks has been notably absent from virtual worlds for children, a business that has expanded rapidly in recent years by serving as part online role-playing game and part social scene. The Walt Disney Company, which bought ClubPenguin.com in 2007 for $700 million, has pumped out sister sites; toy companies like Build-A-Bear Workshop, the retail chain, have flooded the Web with their own offerings.

But oversaturation and the faddish nature of children?s entertainment is starting to batter the once-booming business. About 6.7 million unique visitors logged on to Club Penguin in March, a 7% decline from March 2009, according to research company comScore.

Webkinz.com, where children care for stuffed animals that come to life, registered about 2.7 million, a 58% drop. Neopets.com, owned by Viacom, suffered a 25% decline, to about 2.1 million.

?The market is shaking out – there is only room for so many of these worlds in a child?s life and a parent?s wallet,? said Christopher Byrne, a toy consultant and content director for Time To Play magazine.

DreamWorks is betting that there is a window of opportunity when it comes to slightly older children?after growing out of Club Penguin, where children dress and groom penguin characters, but before becoming interested in more mature online offerings like World of Warcraft, MySpace and Facebook.

It?s not an easy road. A lavish Pirates of the Caribbean world, an attempt by Disney to attract children 10 and older, has been a failure. (Disney is expected to introduce another entry into this market in the coming months, a world built around Cars.)

John Batter, a former executive at the video game giant Electronic Arts, managed the Kung Fu Panda World project for DreamWorks, where he is co-president of production for feature animation. He is confident in his site?s chances in part because DreamWorks took its time.

?With ?Kung Fu Panda? we actually had a property that lent itself very well to this medium,? he said. For those unfamiliar with the film?a sequel is on the way?an underdog kung fu fighter, Po the Panda, finds his inner hero with the help of some oddball friends.

Batter said it took time to work out how to make the world intricate while keeping it technologically easy, or at least apparently easy. ?Most worlds are pretty shallow?we wanted ours to be the exact opposite,? he said.

Kung Fu Panda World is built around the concept of sash levels; players start as a white belt and try to work up through 21 colors. A map shows where your friends are playing within the game – no need to call each other on the phone to figure it out, as many children do when playing in virtual worlds. There is shopping (with coins earned by winning arcade-style games) and players can send gifts to one another.