all the prize machines, like crane machines and stuff are "rigged" in some way or are made to allow the owner to adjust how often the claw grips tight. Those machines with the light blocks is no different. The rigging is just as you said...it's a guarenteed way for the owner of the machine to make a profit. It's a lot like the slot machines at a casino. In a casino by most state laws, they have to pay back 92% or higher of the money that is stuck in them. The only problem with chance machines is when it's your turn to win, there is still the human error and you could mess it up even though 20 times before your technique would have been good enough to win.
As for the video, I don't see why it can't be real. The video wasn't started right from the beginning, and it could have been a cell phone video.