Digg flap exposes cracks in digital news media

Internet news aggregator Digg last week flooded the site with links to a code that allows people to crack the copyright on HD-DVDs—a move that sent shivers down the spines of investors in the digital media space.

VCs have poured more than $215 million in Digg and other news-related startups over the last two years, according to PE Week research, and Digg has emerged as one of the more high-profile companies in the sector.

Since it was launched in 2004, many have heralded the San Francisco-based company as the forerunners of a new generation of digital news media, with its unique delivery and its democratic componenet. Users of Digg determine the placement of news stories by voting on how well they “Digg It.” Several competitors and many clones have since popped up on the scene, such as BlinkList, ClipMarks, CoRank, Newsvine, OpenServing, Conde Naste’s Reddit, SpotBack, Spotplex and StumbleUpon.

Venture capitalists have funded some of these companies. Newsvine, for example, raised a $5 million Series A at the end of 2005 from Second Avenue Partners and Reddit took in seed financing from Y-Combinator and was quickly acquired by publisher Conde Naste.

Greylock and the Omidyar Network have invested more than $11 million in Digg, betting that the startup’s technology may one day redefine the way people receive news. But the recent HD-DVD controversy exposed how small the Digg community is, how little it represents mainstream news values and how quickly its model can fall apart.

Users hijacked the site after the company’s executives pulled the first story on the subject due to fears of legal action. But Digg co-founder Kevin Rose gave in to pressure from the user community’s blitzkrieg of posts and blogged about the code himself, promising not to go down without a fight. “If we lose, then what the hell, at least we died trying,” he writes. The site briefly went down last week due to the glut of page views.

Users of Digg saw, perhaps for the first time, how far the site is far from a traditionall news organization and how it fails to service people with mainstream interests. As one commenter on the popular TechCrunch blog wrote: “Most people just don’t care about their right to post encryption keys, and the fact that this tiny group has managed to overtake Digg really shows their community is a pretty narrow group.”

The site boasted more than 1 million registered users, as of last month, more than five times what it had during the previous year. But the top 100 Digg users control 56% of Digg’s front page content and just 20 individual users submitted one-fourth of the front page content, according to a study by Internet consultancy SEOmoz conducted last summer.

The uproar over Digg allowing the copyright code to be published also marks a test case for social networking sites that similarly accept user-generated content, said Dianne Lynch, dean of the communications school at Ithaca College. Lynch, who also writes regularly about Web 2.0 issues, told PC World magazine: “The situation tests the validity and integrity of social communities.” In this case, the social community won, but what is yet uncertain is how it will affect the investors.