In today’s Business Observer section, I have an article about whether or not companies setting up user-generated websites should consider paying those users for their content.

Revver tried it (paying users $1 million in its first year), but the overwhelming reach of YouTube has greatly limited their success. People who post videos to Revver have to also post them to YouTube or find someone else doing it for them.

And, of course, there’s Capazoo, whose business model involved having its users “tip” each other and getting a cut of that pie. This week, they appear to have died a horrible, horrible death, though it seems to have been more about bad management than a bad business idea.

I spoke to Evan Prodromou, who wrote an essay last July about the problems inherent with paying wiki contributors. The arguments hold true for video-sharing sites, blogs and just about anything where users are expected to work to give your site value.

His conclusion is that “it just doesn’t make a lot of sense” that websites pay for users, because payment makes it seem like work. Instead, they should focus on building communities, where work is valued in a non-monetary sense, and more importantly where the contributions provide value to the users themselves. YouTube allows you to share videos and give them a global reach. Same with Flickr on the photo side. These are user-generated websites, but they’re seen primarily as free services to users.

Many clueless latecomers to the user content game (and especially many media organizations) have been trying to push user participation to the point where they’re beating us over the head with it. Newspapers cut and paste uninteresting, anonymous comments from their message boards. TV weather presenters introduce photos of snow (and dogs in snow) taken by viewers. They all plead with you to share your news tips so they can get the exclusive (and not credit you for it) — provided that news tip doesn’t require too much investigation, of course.

When you try to share your family photos or stories about grandma, shocked that such dreck actually gets published/broadcast, you’re met with 1,000-word user agreements that state IN ALL CAPS that you give up all rights to your content including moral rights and (effectively) copyright, and they can do whatever they want with it without asking you or paying you a dime, even if it has nothing to do with the reason you submitted it. Oh yeah, and it also gives them the right to seize your home, take your dog and copy everything from your hard drive. Didn’t you read that part?

The result is that we get a lot of fluff, but very little useful information. Uninformed opinion, but little news. In other words, a whole lot of junk.

As a freelancer, I’m tempted to say that paying people is the answer. Forget this user-generated crap and get real journalists, photographers, videographers and writers to give you quality news and information. But that plea would fall on deaf ears of money-crunching media executives who see Web 2.0 as a magic ticket to free labour.

One of the lessons that should probably be taken away from this is that in order to get good content from your users, you have to respect them and at least not seem to be evil. They have to feel like they’re doing something valuable that’s worth their time (paid or not). Right now, getting your picture in the paper or on TV is still a pretty big reward for those seeking their 15 minutes. But if nobody reads that paper or watches that TV station because they don’t have quality content, will that continue?

As the article mentions, there are some coming out on the pro-payment bandwagon. Jason Calacanis says that top contributors (that 1-2% who represent the majority of content) are providing much more value to these websites than they’re taking back, and it makes sense to pay them if only to keep them loyal.

Even Wikimedia (which runs Wikipedia and related sites) is paying contributors for the first time with its Philip Greenspun Illustration Project. It’s an exceptional case, with money donated for a very specific purpose. But it represents a step toward paying users for their work.

Prodromou himself agrees that some work should probably be paid for. Administrative work, editing and other non-sexy contributions probably wouldn’t get done otherwise. It makes sense to have a small staff of employees to concentrate on that work. At the same time, web projects must be careful about not instilling a sense of resentment among its non-paid users. It’s a fine line to travel.

But what do you think? Does paying users cheapen what they contribute? Should only extreme superusers get paid for what they do? Or should the economy be allowed to give a monetary value to even the smallest contribution, even though for most people payment would be orders of magnitude less than what we would consider a minimum wage?

(Side note: This article sets a new record for the delay between filing and publication. I completed the article in November, and it sat on the shelf while the Business Observer section was being planned. Since it wasn’t particularly timely, it stayed there until just this week.)