A proxy server and corresponding method are provided for managing the controlled distribution of digital content as it propagates through a social network. A proxy server receives digital content and associated distribution parameters from an originating peer. The distribution parameters define access rights for n allowable levels of possible network distribution. After other peers are invited to share the digital content or the invited peers request access to the digital content, the proxy server generates a rights-managed form of the requested digital content in accordance with the access rights established by the originating peer for the level associated with the requesting peer(s). The proxy server forwards a copy of a content key and other content identifiers to an associated license server and then sends the rights-managed form of digital content to the requesting peer(s).