A cover band is not allowed to make recordings of cover songs or even perform them live without paying licensing fees to the original copyright holder. However, in the case of live performance, it's the venue who will pay the fees through a performance rights organization. So if the band is performing at a venue that does its job, then they don't have to worry about the licensing issues.
For recordings (or youtube), they need to pay a standard licensing fee. The copyright holder of the original song can't demand a bigger fee or forbid the use of their song outright, they have to accept the standard licensing fee.
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