People expecting something that was free to remain that way forever were a bit naive. Getting upset that someone doing something for you for free is now "charging" is unreasonably entitled.
However. Ads are a blight. Sure, there's something to be said for brand awareness, but if I think back on my ad experience for the last 10 years (which is pretty easy because I haven't seen that many ads in that time) then I can safely say that my conversion rate is approximately zero for video ads. And there's several services/goods that I specifically avoid because their ads offended me.
Youtube thinking that they can fix their financial issues by summoning the ad fairy is just as naive and entitled as people who think that youtube should just be free and ad-less forever.
I'm sure it will work short term. But unless they've really thought out how this transition is going to work as well as how they're going to make sure the ads provide significant value to creators/viewers/advertisers, then I expect a slow decline.
With all of the cloud infrastructure providers out there, it's never been a better time to try launching your own video service. Setup some experimental payment options where the whole thing is paid for by an inventive combination of content creators, viewers, and ads. All tailored by the desires of all three. Want your video to be watched? You can pay to make that happen. Want to watch a video. Same deal. Don't want to pay (on either side). Well we can work out deals with advertisers.
I'm sure youtube can work something out to maintain market dominance. But they have to be paying attention to what they're doing and the announcement makes me wonder if they are.