Sorry but what's being described is not related to DMCA or copyright. If I make coolvideos.com I can say "if you upload NASA footage I will show ads on it and give that money to a random third party company" and that's not copyright infringement; public domain is inherently 'anyone can show it for any reason, even commercially'. These "copyright" claims are just Content ID where YouTube allows media rights holders to control what content shows up on YouTube - YT says 'you can only enroll videos that you own into Content ID', however, the enforcement there relies on Google only approving appropriate rights holders/production studios for Content ID. If a rights holder either has their account hacked, or they batch enroll tons of videos they haven't verified that they own the copyright to, then it'll start enforcing Content ID on those videos - and while this is bad for YouTube and its creators, it's definitely not illegal whatsoever since it isn't invoking the DMCA or any other legal action regarding copyright.
Note that, for actual DMCA claims, YouTube WILL go to bat for their creators, especially if it's an obvious case of videos falling under fair use, eg https://youtu.be/aY1CYF3MKec?t=27
In general, Content ID was created in response to Viacom dragging YouTube through court for not preemptively stopping people from uploading episodes of Spongebob. Viacom was planning to take it further up the appeal process until a settlement was reached which lead to the creation of Content ID, eg "viacom will upload copyrighted material to YouTube and YouTube will automatically scan every video to check if it violates viacom's rights". After this happened, of course, other copyright holders like AT&T (WarnerMedia)/NBC/etc and small international rights-holders weren't going to let themselves miss out on this revenue stream, so YT expanded the system to allow any rights management firm or copyright holder to use the system if they were big enough or powerful enough in their region.
I think, what could be called illegal is Content ID being used to actually block public domain content from being used on such terms. Restricting monitarization of said content to the point of becoming exclusive to a single party pretty much comes down to granting copyright. Especially, if this includes monetarization of unique work and effort that has gone into providing the publication of said content (e.g., digitizing from original material, editorial work, etc.)
YouTube is free to set terms for monetization contracts, including granting attribution to third parties under their system. It is not fair, but it is not illegal under any stretch of the imagination. Public domain works have zero copyright protection by definition; there is not a legal status assigned like with copyrighted works.
That said, third party Content ID claims for works not exclusively owned by the claimant are against YouTube's partner terms. The enforcement is just lacking.
> YouTube is free to set terms for monetization contracts, including granting attribution to third parties under their system.
This is obviously not the case. This is really the entire point of having Content ID in the first place: Had YT been free to monetize under their own contracts whoever uploaded an episode of Sponge Bob, Viacom wouldn't have had a case.
I think the argument was about things that are in the public domain. It's not illegal for Youtube to give the revenue from those contents to some random 3rd party.
Note that, for actual DMCA claims, YouTube WILL go to bat for their creators, especially if it's an obvious case of videos falling under fair use, eg https://youtu.be/aY1CYF3MKec?t=27
In general, Content ID was created in response to Viacom dragging YouTube through court for not preemptively stopping people from uploading episodes of Spongebob. Viacom was planning to take it further up the appeal process until a settlement was reached which lead to the creation of Content ID, eg "viacom will upload copyrighted material to YouTube and YouTube will automatically scan every video to check if it violates viacom's rights". After this happened, of course, other copyright holders like AT&T (WarnerMedia)/NBC/etc and small international rights-holders weren't going to let themselves miss out on this revenue stream, so YT expanded the system to allow any rights management firm or copyright holder to use the system if they were big enough or powerful enough in their region.