If YouTube were to pay the recorded music industry market rates, similar to what other streaming services pay, its economic contributions to the sector would be 0. This would be so because YouTube would simply not allow copyright music on its service.
But YouTube actually does pay the industry. Most of the time, if you post a copyrighted song the copyright owner doesn't bother filing a DMCA takedown request, YouTube just informs you that your video contains copyrighted material and that instead of paying you for any ad revenue from views, YouTube pays the copyright holder. I've made a few videos for weddings and funerals, set to music, and that's the case for all of my videos. I don't care. I didn't make them to make money but to honor the people in them, and being able to use the subjects' favorite music and allow the copyright holder to get paid for that use is perfectly acceptable to me.
Are the rates YouTube pays "market rates"? Beats me. They're the rates that the copyright holders agreed to, which makes them "market rates" by definition, doesn't it?
It's not clear to me what the author of this paper is talking about, exactly. Is he talking about revenue lost to copyright holders tho haven't bothered to register their material with YouTube so it can be automatically identified and paid for? Is he talking about revenue lost to copyright holders because YouTube's systems fail to identify their material? The most likely thing, based on the summary, (no, I did not RTFA), is that he believes that if YouTube had to pre-vet content to avoid being sued for inadvertently hosting infringing material, then YouTube would simply not exist and that record labels would instead be able to run their own services and charge whatever they wanted.
I agree that if you allow the record labels complete control, they can find more ways to extract revenue. I don't agree that that's a good thing.