The long tail might be lucrative but there's more overhead, and mainstream(ish) music provides economies of scale.
Put another way: if they can make a penny per view on Psy's Gangnam Style video that's $20m for hosting and distributing one video. Maybe they can get 2 billion combined downloads from indie videos, but that requires hosting and distributing hundreds of thousands of videos. It makes sense, business-wise, to want more favourable terms from indie labels just because their content doesn't monetize as well, doesn't draw advertisers as well, and isn't viewed as much.
This is assuming that the long tail is independent (no pun intended), but it isn't.
Musical taste is a very complex issue, and lots of people are going to be annoyed that a handful of their favorite bands aren't on youtube anymore. Others are going to be really angry that their entire favorite genre is missing. Are enough people going to pissed off enough for it to hurt their bottom line? My guess is yes, especially after the heavy-handed tactics they've been using to try to force adoption of some of their other services that nobody wants.
The bigger problem is that it damages YouTube's brand. It's not just a video hosting site, it's THE video hosting site. It has everything- cute cats, stupid people eating cinnamon, your favorite music, etc. They're going to have real problems when the average user has to go elsewhere to see a video that she cares about, especially if that elsewhere also has cat videos and doesn't require a Google+ account to comment. Supporting the long tail is the cost of maintaining their monopoly.
Put another way: if they can make a penny per view on Psy's Gangnam Style video that's $20m for hosting and distributing one video. Maybe they can get 2 billion combined downloads from indie videos, but that requires hosting and distributing hundreds of thousands of videos. It makes sense, business-wise, to want more favourable terms from indie labels just because their content doesn't monetize as well, doesn't draw advertisers as well, and isn't viewed as much.