What about copyright law? Based on a 2012 decision by Judge Richard Posner of the Seventh Circuit Court of Appeals, it is not copyright infringement to use the embed code furnished by a video web service such as YouTube. Or put in plain English, embedding a video doesn't violate federal law. The logic is that the end user is not producing or distributing the video, and the copyright owner, by providing the embed code, is encouraging viewers to stream the video via their sites. As for the copyright owner's right to control the performance of videos, Judge Posner held that the argument was promising but currently the law was too ambiguous (considering that the data stream originated from another site) to determine whether embedding was a violation of the performance right.
What about YouTube's end user license? The YouTube Terms of Service do provide limitations on what can be done (and can't be done) with its embedding service. If you've agreed to the these terms of services, then there are certain prohibited uses. For example, you can't embed and then sell access to the embedded video. You can't provide advertising, sponsorships, or promotions on top of or within the embedded video. And -- and here's where it gets pretty confusing -- You can't sell, advertise, sponsor or promote any products or services on any page of an ad-enabled blog or website containing the YouTube embed code unless "other material not obtained from YouTube appears on the same page and is of sufficient value to be the basis for such sales." We take that to mean it's okay to sell something on the same page as the embedded video although it seems like an ambiguous, confusing standard and one that allows YouTube, not the user, to determine if a violation has occurred.