Many companies have figured this out and begun acquiring tech outfits even before they have a business model.
The most notorious such acquisition was Google's purchase of YouTube. And now, over a year later, they claim to have that business model problem licked.
The answer -- overlays. Clickable ads run on a portion of the screen, for a portion of the clip's run-time. The alternative, running ads before, during or after the clip, was rejected by Google because, it said, users wouldn't stand for it.
The Register calls this "carpeting" but that's bunk. In the first place it's not rolling out automatically to all videos -- only to those uploaded by big content owners. Second, the current model of completely ad-free videos is unsustainable, it's what is causing the legal headaches in the first place.
If both users, advertisers and (most important) big content owners accept the model, it will probably be rolled out to everyone else who uploads to YouTube, less a discount for administration costs.
Will this quickly be copied by all the other "YouTube clone" sites out there? You bet. Will Viacom, which likes to put in full-screen ads on clips from its shows which are loaded (or embedded) from its own site, be watching this closely? You bet.
But this is a problem which has to be solved, negotiated really among all stakeholders. What Viacom, and the other big content owners, have never recognized is that you, the user, are one of those stakeholders. You have to be willing to accept the way the ads run, or the ads themselves are worthless. Google has recognized this, and has spent over a year in development before rolling out this solution.
If it works, a lot of the objections to more widespread Internet use, and the delivery of more Internet bandwidth, will start to fade. The copyright wars will end.