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.