Mindshapes is aiming for its new Magic Town platform to become the primary entertainment brand for young children in the next few years.
A range of publishers - including Hachette, Penguin and Simon & Schuster - have signed up, according to the Financial Times, with Macmillan and Bloomsbury also in discussions.
The aim is to create a hub where two to six year olds can find interactive ebooks. About 20 titles will be available to read for free, while the full catalogue will cost £7.99 a month or £49.99 for an annual subscription.
About 200 titles will be made available on the platform in the first year, said the FT.
Publishers will be paid royalties based on how many times their books are read online.