>Inheriting those legal problems was a chance they took that could have sunk the entire company in a slightly dumber legal outcome for the status quo of the web, which was still very much in limbo at the time.

Yeah. Smartphones were barely a thing when Google bought YouTube and, more broadly, user-created video wasn't very widespread generally. YouTube's money-losing business, such as it was, mostly consisted of users violating copyright by uploading TV and movie clips.