So what does the RIAA want? (...) The person who made the video to pay?
While it's probably not practical, according to the letter of the law, this would be correct.
Fair Use covers a lot of ground, however it does not extend to appropriating an entire song (or a significant portion thereof) and using it as background music in a video of your own making.
In reality, the record company does not actually care about someone using their music in a youtube video- that usage, in isolation, is harmless and inconsequential. The problem is that if they do not react to such uses, then they will have set precedent for failing to defend their copyright, and thus become vulnerable to more serious infringements. The courts have actually ruled against IP holders in the past who knowingly failed to defend their copyrights against minor infringements when a major infringement took place.
Assuming for the moment that "copyrights" and "IP" are real property, the Jurassic laws needs to be re-written for the 21st century.
I'd be curious to hear your thoughts on what changes are required. Should copyright law only be extended to corporations? Should it count only against for-profit infringements? What does "for-profit" mean, given that YouTube (and Twitter, and Facebook, etc) are all for-profit corporations, even though the people who generate all of the content that they profit from are not?
While some people may not realize this, the music industry as a whole has actually gone to great lengths (and conceded to many compromises) to make the licensing of music relatively simple and streamlined. In the US, there are two major clearinghouses, ASCAP and BMI (both of which are non-profit agencies) where you may go to license copyrighted works for damn near any use, and it's a very simple process. While radio stations are obviously their single biggest customers, they serve all media-related needs, from Hollywood to websites to athletic teams to schools to (...). They even have special, ultra-cheap license agreements for churches and other non-profit agencies. While I agree that the RIAA are a bunch of fascist ********, they are not the only face of the entertainment industry. They just get the majority of the bad press (which is ironic, if you think about it.)
Is that "knowingly failed to enforce" thing a real law anyway, or just a legal court precedent? (which is another crock)
It is Stare Decisis, which is the fancy term for what I suspect you mean by "legal court precedent," and in the United States (along with most other nations whose judicial systems are derived from the old English Common Law system), it is considered "real law."
For starters, come up with a scheme so a copyright holder can declare something like "we will not enforce copyright on youtube vids but it doesn't invalidate my copyright".
This already exists.
Copyright holders are free to release their works for certain specified uses without compromising their protection against other infringements, and these uses need not be non-commercial.
Probably the most well-recognized example of this in the computer industry is GPL, the Gnu Public License. Sometimes refereed to as a "copyleft", the GPL is actually a method by which a copyright holder can make their product freely available for certain specified uses under certain specified conditions, without compromising the basic copyright or their ability to enforce it in the future. In fact, the exact text of the GPL is itself copyrighted, even though the owner of the copyright (the Free Software Foundation) specifically permits that it be freely distributed.
Creative Commons is another license (actually a whole set of licenses) which are available to copyright holders (again, free of charge) to allow and disallow all sorts of specific things. For example, you might allow non-commercial redistribution but prohibit modification or commercial redistribution. Or you might allow modification and redistribution, commercial or noncommercial, so long as the modified / redistributed work attributes credit to the original author and also carries the same license.
"That's fine and well for a bunch of hippies doing a stage show, but not applicable to the "real" music industry," you might say.
Not at all. It is, in fact, increasingly common for "real" bands (those signed under commercial labels) to release certain tracks from new albums "for free" under various social-media sites. This practice has been going on for longer than FaceBook and MySpace have existed. Hell, back in the 90's I can remember some band (Weezer? The Apples in Stereo? Somebody like that) which was releasing tracks for free download via an FTP server.
The law isn't broken. You (people who want to embed music in their Youtube videos) simply need to lobby the copyright holders to allow it.