It's time for Google to call Viacom on its bluff, Viacom only benefits from YouYube and definitely does not want its YouTube presense removed. The Viacom lawsuit claiming "massive intentional copyright infringement" is just one gigantic bluff, Viacom simply wants to have its cake and eat it too.
If Viacom is really trying to create its own equivalent counter to YouTube then they are giving a decisive edge to all its competitors who would rather strike up a deal with YouTube. Since YouTube is purely a free content host it doesn't charge royalties for hosted videos. Media companies that are willing to work with YouTube don't have to pay server costs, web development or anything else like that, nor will they have to create any community from scratch.
Perhaps Viacom is trying to end or at least damage YouTube's standing so that its own iFilm can get a step closer to market dominance. Of course this creates the double edge sword, if YouTube is infringing on copyright how come iFilm isn't? Unless of course the hypothetical content screener is advanced enough to catch all copyright material before long (which is next to impossible).
Viacom insists YouTube is a media company, as such is obligated to pay royalty fees in the tune of 1 billion dollars and/or install some sort of software filter to remove and prevent the uploading of Viacom content. Viacom probably doesn't think it is technically feasible to install such a filter and simultaneously doesn't want to lose its significant YouTube presence hence it has a win-win situation here. I would even hazard to say all the take down notices Viacom has been hitting YouTube with is part of the bluff Viacom intends to take to the courtroom.
Of course Viacom can't get the 1 billion, hence will rely on settling out of court with Google, obviously Viacom will still gain from it. What Google should do is trump Viacom, if it is possible, install the software filter, then cut Viacom completely from all services including Google search. If Google is a media company then it is in their right to do (even if it isn't, but this gives greater legal standing over Viacom).
When Viacom starts losing ratings, hence profits due to this cut off from the Google empire a lawsuit won't get them anywhere given they have already declared YouTube, and as such the entire Google empire, as a Content Generator, not Content Host. Hence to get back with Google Viacom will have to pay royalties to Google, to regain its place in Google's search engine and hosting on YouTube.
Of course this is an ideal situation, in the real world Google will suffer massive negative backlash if it cuts a company from its search outright, however it will prove itself as an important case study (if you would like to call it that) to big businesses that they do in fact require Google to stay competitive.