Is Mainstream Media Capitalizing on Citizen Journalism?

I blog about it all the time: citizen journalism is on the rise. Meanwhile, newspapers are folding at an ever-increasing rate.

What's the natural next step as these two trends become more and more prevalent? Online news outlets depending on citizen--e.g. unpaid--journalists to provide content while they continue to phase-out real--e.g. paid--journalists. Not only does this make sense financially, but since user-generated content is what readers want anyway, advertisers are becoming increasingly interested in going where the unpaid--and popular--content is.

A concrete step towards this new model will be rolled out this coming Monday--in the form of a blogroll, that is. The New York Times is launching a local blog network that will feature content from the paper’s editors but also rely on user-generated content from locals readers. Jim Schachter, editor for digital initiatives at The New York Times, explained:
We expect to sell ads to local merchants using our telesales and self-serve ad solution. Our two pilot sites are staffed with full-time NYTimes reporters. That’s not cheap. Obviously, it’s also not a sustainable model.

What a dream scenario for newspapers and online news outlets, right? Not only do they not have to pay reporters anymore, but ad revenue will increase.

My question is this: is relying on citizen journalists a sustainable model? As it stands now, playing on citizen journalists' vanity is basically the model: people want to write and have people read it, and they want to be able to say that their stuff is featured on mainstream, high-traffic websites.

But how long will people be willing to put the time and effort into creating high-quality blog or video posts if they're not being compensated? At what point do citizen journalists basically become freelancers working for free? If I had to guess, I'd say right about the time when statistics start to show that websites are generating a bunch of revenue as a result of the content users are providing for free.