Since they target ads demographically and ads change frequently, that would be a mess… The encoding, storage, and tracking would be a Big problem.
If they go this route, it would only make sense if they build a new video codec that allows for linearly splitting content at key frames so they can concatenate the ads with the video in a single file at runtime.
But then couldn’t ad detectors just start playback at the key frames?
Even if it works, it would still be a Big Deal since re-encoding all of YouTube would be Hard. I guess they could just use the codec for all newly added material. Playback might suck on older devices, too; idk if they use h264 (that has dedicated hardware decoders)?