The relevant law here is the DMCA, which gives safe harbor to anyone hosting 3rd party content if they respond to timely takedown requests, which YouTube does.

My understanding is YouTube technically doesn't deal with many DMCA take downs. Their reporting system is technically a voluntary system in front of DMCA.

Large IP holders are happy to use it because it heavily favors them. Large IP holders also don't have to worry about repercussions for false or incorrect DMCA claims.

Yes, that’s true now, but that really got going after YouTube used the DMCA to beat some copyright lawsuits, most prominently by Viacom.

It became obvious to big copyright owners that they would get more if they played ball with Google instead of fighting them in court.

I've been in a few discussions on Reddit where people said this is a half-truth. Perhaps someone can confirm?

From Wikipedia[0]: § 512(c) also requires that the OSP: 1) not receive a financial benefit directly attributable to the infringing activity, 2) not be aware of the presence of infringing material or know any facts or circumstances that would make infringing material apparent, and 3) upon receiving notice from copyright owners or their agents, act expeditiously to remove the purported infringing material.

This is an 'and' which I take to mean safe harbour takedown (the 3rd clause) only applies if the other two are also true. So the host must not know it exists (plausible for YouTube) and not receive a direct financial benefit (does Ad revenue count?).

[0]: https://en.wikipedia.org/wiki/Online_Copyright_Infringement_...

Don’t forget giving a slice to the biggest copyright holders (who otherwise do have the $$$ to sue) to keep them on your team.

That is basically it from what I understand. It is impractical for most entities to track down violators and issue takedowns, so the content stays up.

DMCA safe harbor (copyright) instead of section 230 (moderation for content), but yeah, that sounds right. Before Content ID existed, they could convincingly say they didn't have automatic means and they were taking all commercially reasonable efforts to respond to manual reports, and meanwhile their staff couldn't keep up with people uploading new infringing content.