Pretty fun concept, I could definitely enjoy something like this being developed further.
Personally I'd like to see this wrapped in a tiny bit more story - not a lot, just enough for us to really know who we are, who we're fighting and what the consequences of winning or losing might be. Oh, and I'm all about losing, so I'd love to see some consequences for defeat, like becoming the winner's sex slave or something (maybe we had a bet going, maybe she was just so good that we couldn't resist her taking us home, there are plenty of excuses to choose from...). And some in-fight surrender choices could be fun, like instead of choosing our next attack we decide to just enjoy what our opponent is doing to us, you know, just for a moment... Of course, these are just my personal wishes, I don't really know if they fit what you wanna do...
I will defend the dev a bit. Breaking a video into branching paths, recontextualizing it and writing new dialogue is at least as much game development as other html games that use pictures. Saying that you don't need the game if you can watch the video is a bit like saying you don't need to play other games if you already have their CGs - the interactivity of experiencing the content in game form is the fun part. For example, I'm interested in playing this game, but I'm not really interested in watching any video used in it by itself...
Regarding the legal aspect, I'm not sure. I'm not a legal expert... I do know that receiving money for something that uses copyrighted material without permission is probably illegal. I think that using such material for something free should be fine, but having a patreon account to support the developer of games when the games themselves are free is... I dunno? Well, I'm glad I could be of assistance I guess...