Sarah Lacy asks the question.
Welcome to the catch-22 of User Generated Content. And guess what? It hasn’t changed with time. We all know there are talented people who never get their lucky breaks, so democratization works in theory. But there’s a problem: It doesn’t make money. Users don’t want to pay subscription fees for something aspiring writers, singers, and actors are uploading for free, and advertisers don’t want to be next to dodgy and unpredictable inventory, no matter how gaudy the page views or streams.
In the LivePlanet-era, costs and excesses ran fledgling UGC companies into the ground. But this time around, with more people online, greater access to bandwidth, a more established online advertising ecosystem, and far lower burn rates, there was reason to believe the monetization nut could be cracked. After all, there was a time when no one thought you could make money off of search. Tim Koogle reportedly used to brag at Yahoo analyst meetings that search traffic was going down, because how could you possibly make money off people leaving your site?
Then, the financial world blew up the economy for us. And the most rosy-eyed optimists have come to realize that even though Web companies didn’t cause the meltdown this time, they’re still getting hit. Companies need revenues and in a duck-and-cover economy, it seems UGC isn’t going to get them there. Across the Web 2.0 world, we’re seeing a quiet-but-knee-jerk shift away from UGC in favor of professional content.
I wrote about this idea 
back in February when Slide—a company that’s long championed the marketability of individual expression—did a deal with Ashton Kutcher’s Katalyst Media. But in the last few weeks, there’s been a better example: YouTube. Last week, news leaked that YouTube was close to locking Disney up in an exclusive deal for long-form content, and now, we hear of a potential deal with Sony Pictures.
It is true that UGC gets a bad wrap these days. It is also true that most of UGC would not get same CPMs as professional content. But it would be a mistake to throw out the baby with the bath water and ditch UGC altogether. I don’t think pasting advertiesements against UGC is a great idea anyway. As Umair Haque says UGC should stand for user generated context (not content). That is the key to cracking the code on UGC. People haven’t really figured it out yet. But they will. UGC has value too.