The purchase is expected to give Disney an immediate foothold in social networking, a fast-growing business. Disney said that about $350 million more will be added if the Canadian company's founders reach profit targets through 2009.

The website was already profitable and although its cash flow wouldn't materially affect Disney's bottom line right away, in the long run it was likely to become an important piece of the company's online strategy.

Disney chief executive Bob Iger said the newest acquisition would be called 'Disney's Club Penguin' and market it across its entertainment outlets. He said, "Club Penguin embodies principles that are of the utmost importance to Disney - providing high-quality family entertainment and fostering parental trust. It is another asset that can complement our internet initiative."

Launched in October 2005, Club Penguin has more than 700,000 paid subscribers and 12 million registered users, most of them in the United States and Canada.

According to research service Hitwise, traffic at ClubPenguin.com rose 329 per cent in June from a year earlier making it 131 in the ranking list of most visited sites in U.S.

According to Iger, Club Penguin had grown through word of mouth and could leverage Disney's marketing muscle, especially in untapped areas overseas.