The New York Times today has an article that looks at the debate in Hollywood over what its response should be to the growing popularity of video sharing sites like YouTube.

As YouTube, with the backing of Google, becomes a powerful force in the media world, Hollywood studios and other entertainment companies are trying to figure out if it is friend or foe. After all, YouTube distributes unauthorized clips of the movies that the studios spend an average of $96 million to make. But it can also help them build tremendous buzz, and that is driving Hollywood to try to work with it instead of against it.

Hoping to avoid some of the problems in the music industry that arose from illegal downloading of songs, all of the major studios — including NBC Universal, Warner Brothers Entertainment, which is owned by Time Warner, and the News Corporation’s 20th Century Fox, are in negotiations with YouTube seeking licensing agreements that would make their content legally available on the site.

In the meantime, they are also pressing YouTube to adopt filtering mechanisms more quickly to keep unlawful material from even showing up. And several media companies are in talks to create their own YouTube-like site, a move some in the industry suggest is a form of posturing to help push the licensing negotiations forward.

“I think studios will sue if they don’t get a licensing deal they like,” said Jessica Litman, a professor at the University of Michigan Law School. “My guess is if I were a movie studio, getting a cut of the money is more profitable than shutting it down. But it’s complicated, very complicated, and it’s only going to get worse.”

Google also has a lot resting on how these copyright issues are resolved, because investors are eager to see whether the $1.65 billion it paid for YouTube was well-spent.

It’s clear that Hollywood will have to deal with sites like YouTube, one way or another, because of their massive popularity.

What’s not clear is how companies will be able to turn their vast stores of content into something that can legally and profitably shared online.