I didn't watch the video but all of Ash's responses in the comments are 100% in line with my label experience. My guess is that the band hired a lawyer unfamiliar with the music business. Ash may be (I have no idea) a saint or a scumbag but the reality is that all of that contract stuff is boilerplate and it is completely reasonable that the label would want to wait to announce the "winner" when a band actually signed a contract. Maybe this whole contest was a scam or maybe these kids are just really green. Every contract I've negotiated (Relapse, Earache, Candlelight) had A+R clauses, membership clauses, and rights of refusal.
Anyway, it is entirely possible to exist as a band without a label but it requires a coincidence of prowess in music, social media, marketing, business and often times production. That's a really difficult road.
Labels are a mixed bag. My experience has been that they've given us recording budgets, gotten us tours, given us tour support, given us video budgets and gotten us press. In exchange for that they take the lion's share of record sale profits. I've little doubt we could have made the same money on our own but I doubt I would have had the same opportunities and IME that was a worthwhile trade.