Not saying it's "Bad" in terms of harmful or evil in any way. Just not a good recruiting process.

On entry-level positions sure, it might work, especially when candidates mostly have few projects of their own that they can talk about in terms of successes or failures. Those "straight-out-of-collage" or "design-mostly-for-dribbble" people, that have the software know-how and some knowledge, but not much experience. Although, even there showing an approach resembling the "American Idol" formula can push some better candidates away.

Think about the recruiting process as you would about any other service you design in terms of user experience. The goal is "to find the best fit for the job", for both the candidates and you. To achieve that, both sides need to obtain as much information as possible, in a short amount of time. Do you really think a pre-recorder video or a website is the right approach?

For instance, someone unemployed will have hours or days to work on this kind of assignment, while someone with a full-time job they want to leave won't have this luxury. The final outcome of their application will be very different, but will this tell you anything about their skill level? Knowledge? Past experiences? It will mostly tell you who had more free time in the days/weeks before applying. And it will cost them time, as well as you (as you need to see and review what they've done).

If you want to hire and maintain good employees, experienced specialists, you need to sit by the table as equals, have conversations, get to know the other person and let them know you. Not make them jump through hoops and hire the last man standing. That will mostly leave the desperate and the determined on the field, and those aren't necessarily the best candidates for the job.