Can user generated content be used in ad campaigns?

It wasn't long ago that no one had heard of User Generated Content (UGC). It hasn't taken long though for advertisers to realize they resonate with their target audience and are a great staging ground for a focus group study. Just in the past year or so UG commercials have sprinted onto the scene and created a stir throughout the advertising world. Advertisers from Dorritos to Dove to Malibu Caribbean Rum have held contests to find user-created videos to use as commercials. These types of commercials, and the buzz surrounding them from different media outlets that cover them and the people that talk about them, shows that the advertising world is embracing the advantages of viral marketing.

How does an advertising agency decide whether going in front of their brand with a clip from YouTube is a good idea and won't get them fired on the spot? How much convincing does it take a brand to trust the advertiser that it isn't as big a leap of faith as they think it is to use the content in a campaign? We saw what happened with Virgin Media and using CC Flickr photos. They did it the wrong way and are now paying for it in legal headaches and a botched campaign.

The pros and cons of a UGC campaign have been discussed at length all over the Internet and across boardrooms. It's our opinion that, using UGC in an advertising campaign can be very cost effective. In most cases, the creators are paid as if they are an actor and give up a lot of the rights to the video. That saves a brand a lot of money.

Why wouldn't the creators license the videos to the brand or advertiser to use? It seems like they are short-changing themselves the value of the clip. If you had a hit on YouTube and a major brand came to you and said they wanted to use it, what would you do?