Well you seem to think that a record company shouldn't make any money and give their product away for free. That's pretty asinine.
The better question to this response is if a media company has their product continuously
taken for free, what is the whole point in releasing as such?
You know what grinds my gears is that almost the same exact ground that defends pirating and downloads is the same crowd that whines about DRM and copy protection. The whole reason we have expanding DRM and CP schemes is a result of increase in un-authorized distribution of media. They act as if this is also some devilish new scheme by evil corporations.
What most fail to understand is that their is an economic impact that can come right back to hit them on the @$$. The best example are TV shows popularly downloaded. This last spring on FOX they had two Scifi shows; Terminator series and Dollhouse. Both with equally dismal ratings. Yet one was canceled, the other given a new season for one simple reason. It comes down to who produced said series, and thus who will retain DVD revenue. The Terminator franchise is owned by Warner Brothers, yet it aired on FOX. Dollhouse on the other hand is produced by FOX studios, thus FOX will receive a portion of DVD sales.
Last year we saw the end of SciFi channel's Stargate Atlantis and Battlestar Galactic. Both of these also had similar ratings, yet Stargate is owned by MGM, Battlestar was produced by NBC (owner of Scifi channel). While Battlestar was immensely more expensive to produce, SciFi did keep it on the air longer that it normally would for one sole reason; they will retain DVD sales. Stargate on the other hand provides Scfi with no DVD sales, so even though it got about the same ratings, and was much cheaper to produce that show was ended.
Now let's explore further to the HBO and Showtime series. These of course are produced by HBO and Showtime themselves, aired for free on their network without commercials. So then these shows alone are dependent solely on the expectation now of DVD sales. For HBO and Showtime it will take a minimum of 5 years/100 episodes before they can resell for syndication. Before that these costly shows are reliant on one thing financially; DVD sales. Hence why HBO and Showtime are the most proactive in stopping the spread of pirated DVDs of their shows.
Now I don't think it takes a lot of economic theory here to figure out in all these examples the result if DVD sales begin to slow while we have a rise in pirating. Point one is that studios are willing to let shows survive longer than they should because of one expectation and hope; lost ad revenue will be regained through DVD sales. Thus the a slowdown in sales could/would only hastened the end of said show.
Point two is that the days of free as in beer airings of TV shows are ending, at least for the networks. What I mean is that networks no longer can support shows by simply using the ad generated model. They are dependent upon the sales to consumers.
For game companies, more and more games are no longer something that can be chewed out every few months. I believe the average production time is coming close to two years. That is two years of a burn of expenses without any revenue generated. The result of the industry over the past decade as seen the death of independent small house developers either going bankrupt or being purchased by larger firms. The result has been much less in innovation and risk taking, and increase in bland generic titles....hello Madden 2010. Games of course are ever so popular to pirate, and of course each copy downloaded is a copy of revenue lost to the firm that just burned x millions, all of which needs to be paid back to investors.
The spread of pirating also limits the ability now of small/independent developers in making an actual living. On a personal note I happen to know this one person who sells a application for $10, to which users who purchase get a lifetime of upgrades. That is ten freaking dollars, yet his applications are seen quite often being pirated. This has been much discussed, and to date he has not enacted in draconian methods to prevent this or limit the ability of people to crack it. So this does affect me personally, me who has spent the whole whopping $10. If at some point he determines it is no longer financially viable to continue, I lose out because some people are too freaking cheap to spend a measly $10.
In summary, there is a very real world consequence to a massive increase in the spread of pirated media. TV shows, HBO series, games, and software are dependent upon revenue to be able to continue. Doesn't take rocket science to figure out if the revenue drops and it no longer makes economic sense to continue, who loses? Everyone does.