If someone is running youtube-dl on a server to deliver files, the user could input 'file:///some/important/file' and youtube-dl would save that file as a video giving access to sensitive information to the user.
'file:' urls can be filtered, but the user can use an URL to a crafted m3u8 manifest like:
#EXTM3U
#EXT-X-MEDIA-SEQUENCE:0
#EXTINF:10.0
file:///etc/passwd
#EXT-X-ENDLIST
With this patch 'file:' URLs raise URLError like for unknown protocols.