How about advertising without the tracking? Advertising not shown specifically to me because of any attributes Google thinks apply to me? Advertising limited to a 5s lead in at the start of the video (today, this video is sponsored by …) and a static banner hidden when going full-screen. Advertising held to high standards, and advertising which can be vetoed by the video's uploader. In short, ethical advertising.
Google can surely figure this out and still turn a profit on Youtube. Greed stops them from doing this.
Why? Surely knowing the content of the video gives them enough context to serve advertising relevant to the viewer without tracking.
At the very least they could guarentee that YouTube Premium tracking doesn't get used for profiling later. I think that would be a very acceptable solution but they don't offer it.
Google can surely figure this out and still turn a profit on Youtube. Greed stops them from doing this.