The phrasing (and its effect on how people react to the story) is very interesting. If it had gone instead with "Google forcing labels to allow ad-free youtube subscription service" or something, you'd probably see far more positive reactions. I hate services like hulu plus (subscription and ads!) with a fiery passion, so it sounds good to me.
On the other hand, youtube is so ubiquitous, "block" might not be that poor of a choice of words, as not being able to monetize on youtube is surely a hit. Of course, if they're getting revenue from ads they already have some kind of deal, this is just a different one, and it wasn't so long ago that some labels were holding out ("blocking" youtube from playing their music) in a reverse of the situation.
Really, though, without knowing the details of how google is trying to strongarm them into this agreement (or even the terms of the agreement), it's hard to make much of a judgement here. Definitely played up in the news for drama, though.