When it comes to content, you have creation, aggregation and distribution.  Oftentimes the aggregation and distribution are bundled into one, as is the case with YouTube - who is not only one of the distribution partners in WatchMojo.com’s syndication network but the web’s largest aggregator of video content, period.  Of the 40M streams we’ve done since launching, just under 50%, or 20M, have come on YouTube.

The largest news aggregator happens to be Digg, whose financials Business Week managed to get its hands on.  Considering the site’s traffic, the figures aren’t pretty. Digg greets over 20M unique users per month, has an advertising deal with web sugar daddy Microsoft in placebut can only muster about $1-2M in quarterly sales, operating in the red to the tune of $5M per year.

Why?  Basically, the site is a “link dump” and aggregates content headlines and titles and drives out traffic - lots of it - to underlying sites.  By virtue of not having any content, it cannot really sell targeted and premium display ads; by virtue of its nature, no one is there to click on ads (unlike Google’s search, where even a small proportion clicks on paid links versus organic results generates billions in revenue).

Digg is one of the poster childs of social media, it has thrown news and publishing in a loop, but as an ad-supported business, like other social media companies (Facebook, notably), it is failing to gain any traction.

In good times when VCs are willing to underwrite losses, this is not a problem.  In bad times, VCs are less willing.  In the end of days-kind of times, VCs are seeing their own investors bail and as a result really can’t fund companies like Digg.  True, Digg recently raised $28M (I think that was basically Kevin Rose cashing out in some kind of founder’s liquidity deal), but that was in the works before the “econalypse” hit.  Today, no way would that deal get done.

As a result, it’s fair game to ask, as does VC Jeremy Liew: Will the recession kill “social media”?  I hope so, personally.  As a content producer, I think the whole web 2.0 / social media fad is just that: a fad… much like the B2B craze of 2000 was the frothy exclamation point on an excessive period that was due for a crash.  This time around mind you: social media has been the sundae, icing and cherry of the bubble… and the time is nigh to nuke the whole social media as a business rhetoric.  Don’t get me wrong: all media companies need to be aware how social media changes the rules… but to build a business based solely on social media?  That’s suicide.

The problem - and stop now if this sounds familiar - is the utter lack of respect that the Web 2.0 crowd (and the financiers who inflated the bubble) have for content.

If you think about it, there is something deeply disturbing about companies that aggregate or scraping content to get mammoth valuations from VCs yet content creating companies are generally not favored for investment.  That is a morally bankrupt position and the recession is now showing that it is also an economically hollow position as well.  So to answer Jeremy Liew’s question: the recession is not the cause of social media’s death but simply the accelerator.