If the law really does say what VidAngel did is wrong, then the law is wrong and should be changed. I think it should be obvious to anyone who can read that the big media companies have (successfully) fought for decades to unfairly protect their bottom line, at the expense of everyone else. That's not ok; governments should not exist to protect crappy business models. Hell, there'd still be plenty of money to be made with much more lax copyright law.
If you wanna change that, find some other way to compensate artists first. They are the value creator. Attacking the bloated middlemen in the delivery chain doesn't remove the need for creators to eat. That is VidAngel's moral failure, as least going by the scenario as described: they weren't returning value to where it came from, instead tried to create a legal fiction to justify rent-seeking behaviour.
In particular, you can't just write up your own legal fictions and expect them to be honored. It would seem the developers in the story above learned this lesson the hard way.