Hullabalu, a New York-based startup founded by Suzanne Xie is launching an astonishing new experience on the iPad that is focused on kids called Pan: The Fearless Beribolt ($3.99 on the iTunes store). If you look at the package, then it is merely an app. But peel the onion, and you start to see an experience that is tailor made for the tablet generation.

Xie started the company a year ago with the idea of creating a line of toys based on characters she had imagined. She quickly realized that while toys seem like a great idea, what was needed was a brand new story telling experience for kids. She found that most of the kids-focused content on the iPad was simply re-purposed from books and television shows. It didn’t really leverage the amazing capabilities of the iPad.

So she raised $1.8 million from a whole lot of angels and seed funds (such as SV Angel; Alexis Ohanian, Cofounder of Reddit; Gokul Rajaram, Head of Ads at Facebook (s FB) and Brian Sugar, Founder of Sugar) and started building this new experience. It involved watching kids for hours playing with iPad and learning what made them happy. A lesson she learned and that all of us should remember:  These tablet native generation think of the screen in front of them differently.

With that knowledge, she and her team of six worked on this app which went live in the app store this morning. It is an experience so stunning and beautiful that even my jaded old eyes lit up and brought a smile to my face. And as Xie gave me a demo of Pan: The Fearless Beribolt in a New York coffee shop last week, I could feel the eyes of the collective coffee shop on us (or more likely on the screen.)

Just like comics and stories, it has characters – in this case a cute little Panda can Pan. Just like television shows it has episodes (it called them chapters) and it has memorable lines for kids to remember. If things go well, there will be future seasons (apps), and in the near future there’s even the possibility to license the characters to, well, those who make toys. But it has a lot more — it allows kids to use the iPad in the unique way only they do to explore the story. It allows them to shake, rattle and scroll and find new plots and new graphics. It has a cute photo camera that allows one  to take photos with your favorite character and share them with friends and family. They call it Pandagram, by the way.

Being old like I am, one thing I don’t know: will kids stay engaged, and is there enough story telling to keep them addicted to this little app? And if they do, can Xie and her team keep producing new content to keep those fickle toddlers from flipping to the next app?

That said, when I was watching the demo, I was thinking back to the early days of Angry Birds, which captured iPhone’s touch capabilities perfectly and became a phenomenon. This one  goes a step further, for this shows what future of kids entertainment looks like in the age of the tablet.

Just like we had television and computers, the babies today are going to think of tablet as their only screen that is relevant to them and touch as their default way to interact with the screens. I mean, sure, there are cartoons on television, but if kids are growing up with the iPad, then it is the only screen that matters and the idea of cartoons and story telling has to start from this baby screen and then extend to the big screen.

PS: I hope Disney corp-dev is paying attention. And I really hope Apple features these guys on their app store, for it is a great testimonial of the iPad’s capabilities.