I think Kevin Rose might be on the verge of something big, again. For those not familiar, Kevin is the founder of Digg, the social news aggregator that now boasts over 17 million unique visitors per month… and the latest to get into bed with Microsoft via its sweet ad deal. There is no doubt, at least in my mind, that Digg is not too far from some kind of a major liquidity event and Kevin will cash out quite handsomely. So on the heels of Digg’s successful incursion into the social news space, he has started up (with co-founder Leah Culver) another venture that has the potential to significantly transform, this time, the social networking industry… Pownce.

What Pownce offers is a key piece of functionality that is likely to take social networking to the next generation… peer-to-peer file-sharing capabilities. To explain why this is potentially significant, allow me to point you to a piece I wrote for ZDNet 15 months ago:

As we all know by now, social networking is all about self-expression. And for most, showing the world which music and videos you like is a big part of demonstrating who you are as an individual. In fact, social networks are proving to be a highly useful resource for the discovery and recommendation of all sorts of art forms and cultural products. But instead of simply declaring what you like, social networks turbo-charged with P2P capabilities will allow users to actually share. Compound this with the fact that social networks overlap… what I call the “Venns effect” (as in Venn diagrams)… and any one person can effectively have access to thousands or even millions of other connected “friends” beyond their immediate social circle. So if all of a sudden, one-click file-sharing is added to this equation, it doesn’t take a rocket scientist to figure out what will probably happen next. I’d even be comfortable predicting that such a P2P-based social networking service could quite easily trump MySpace as the next “must-have” for teens.

With the aforementioned in mind, let me now point you to an article that just came today in the U.K. Telegraph titled “Illegal Music Downloads Hit Record High”. And here’s the money quote:

Four out of every ten social network users have music embedded in their personal profiles, rising to 65pc among teenagers.

Russell Hart, chief executive of Entertainment Media Research, described this phenomenon as “the democratisation of the music industry.

“Social networks are fundamentally changing the way we discover, purchase and use music,” he said. “The dynamics of democratisation, word of mouth recommendation and instant purchase challenge the established order and offer huge opportunities to forward-thinking businesses.”

The survey has further bad news for the music industry as it found that 43pc of those questioned are downloading tracks illegally, up from 36pc last year.

At the same time, there has been a dramatic slowdown in the growth of authorised downloads, with the number of legal downloaders growing by just 15pc this year, compared to 40pc in 2006.

So does this mean that Kevin is the new Shawn Fanning? Is Pownce the “son of KaZaA” or the “grandson of Napster”? In other words, should established media companies fear that Pownce will become the new hotbed for illegal file-sharing? The New York Times, which profiled Pownce just this past Sunday, certainly seems to think so:

Most file-sharing occurs on public sites, which can be monitored by media companies; if the users violate copyrights, the sites or the users themselves can be threatened into compliance or litigated out of existence (as happened with the original Napster). File-sharing on Pownce would be difficult to police.

If I were a media executive concerned about protecting my intellectual property, I would pounce on Pownce. It’s possibly no coincidence that the name Mr. Rose chose for his new venture suggests the Internet gamer’s jargon “pwn,” which means to take control of a system by exploiting some vulnerability.

There’s certainly the chance that Pownce could become the latest “nightmare” for media companies, but let me end this post the same way I ended my ZDNet piece, by saying:

The media players need to understand that P2P that’s embedded into social networks is a very different animal than previous generations of P2P, and the issues surrounding piracy are far less insidious and much more manageable. There’s still the issue of control over distribution, of course (they’ll have to let go), but the opportunities to monetize are substantial, as are the prospects for materially lowering marketing and distribution costs. At the end of the day, the most important factor that will ultimately influence the final outcome rests on the media companies themselves, and whether they try to fight it or co-opt it to their benefit.

In short, the major record labels and film studios in Hollywood should be going out of their way to call Kevin and Leah in order to discuss ways of doing business together.