There have been plenty of free distributed hosting services for the web that worked perfectly (popcorn time, etc, etc). It's just that every time they become popular they are attacked legally and shut down. The problem is not technical, or even resource based, the problem is legal. Only a mega-corp can withstand the legal attacks.

And even if the legal attacks could be mitigated most people would still use youtube because they're there for the money (or for people who are there for the money). They are not there for a video host. Youtube enables distribution of money and there's no way that any government would let any free system distribute money without even more intense legal, and indeed physically violent, attacks.