Many smart devices that have youtube functionality(tvs, refrigerators, consoles, cable boxes, etc), have limited or no ability to support that functionality in hardware, or even if they do, it might not be exposed.
Once those devices get phased out, it is very likely they will move to Encrypted Media Extensions or something similar, I believe I saw an issue ticket on yt-dlp's repo indicating they are already experimenting with such, as certain formats are DRM protected. Lookup all the stuff going on with SABR which if I remember right is either related to DRM or what they may use to support DRM.
Here has to be at least some benefit Google thinks it gets from youtube downloaders, because for instance there have been various lawsuits going after companies that provide a website to do youtube downloading by the RIAA and co, but Google has studiously avoided endorsing their legal arguments.
for example I think feature length films that YouTube sells (or rents) already use this encryption.
That’s why authors should pony up and pay for the encryption feature and rest should be free to download. YouTube could embed ads this way too.
That's a wildly imaginative fever dream you're having. There is no timeline in which content creators would pay YouTube to encrypt their video content.
Here's a thought: what if paying a fixed amount to encrypt your video would grant you a much higher commission for the ads shown?
Anything that's had an official YouTube app for the past nine years does, because it's been a hard requirement for a YouTube port that long.
It's much more likely YouTube just doesn't want to mess with it's caching apparatus unless it really has to. And I think they will eventually, but the numbers just don't quite add up yet.