[untog]

The truth lies somewhere in the middle. Both Google and Vevo benefit from the current arrangement. As someone who works at a video-based startup, I can tell you that for a large majority of people online, YouTube = online video. Getting sites (like, say, Tumblr, Reddit, etc) to accept video embeds from you is a huge pain. Grafting on a layer of social networking similar to YouTube's and getting people to actually like, comment, etc. is incredibly difficult.

YouTube works, for good reasons.

[idspispopd]

I don't think it'll be the undoing of youtube - not at all. Youtube offers much to their audience, this certainly won't dramatically change their business. It does however give any competitor a much better standing to compete against youtube, giving the competitor relevance and a bucket load of traffic from consumers seeking desirable content. (The top 10 searches every year involve one or more music celebrities.)

It'll be interesting how it plays out anyway, now that google has announced it will discontinue video search altogether (in favour of youtube only.)