This is under the assumption that everyone who watches a movie/listens to a song/downloads and plays a game for Free off the internet would pay to do it if the internet option wasn't in place. For example, I've watched tons of movies and listened to tons of songs on Youtube that I wouldn't have paid for, simply because I didn't like them enough/wasn't inclined enough to do so. But just because it was free and easily available, I did.Piracy is what it is. Are you not obtaining the company's/producer's output by illegal means?
No, it isn't illegal to loan out a DVD or either items to a friend as a means of personal distribution (to a widespread 'extreme' loan extent, then yes). However, it is illegal to make a copy of it and give it or sell it to that friend a a means of personal gain. Uploading movies is illegal. Leaving them available for OTHER people to download is illegal. That's like making thousands of copies and just giving them away. However, in this scenario, you don't make any money on it. BUT, neither does the copyright owner, and that makes it illegal.
On the flip side, I will argue that spreading media for Free over the Internet is a great way to earn more fans who genuinely appreciate your work and will want to buy it. I downloaded and played Cricket Coach 2011 illegally, but liked it so much I bought the real version and plan to buy CC2012 when it's released too. That wouldn't have happened if not for these avenues.
In the same way, I've become big fans of Radiohead, Linkin Park, Red Hot Chilli Peppers, Daft Punk, Coldplay, Bob Marley and so many artists due to their songs being so easily accessible through Youtube, Soundcloud, Grooveshark and software like Limewire. I would not have heard of them otherwise. I am now willing to pay money to attend concerts, and buy their music, thanks to the free and easy exposure from the internet.
These aren't isolated examples. So many would agree with them. The general premise that companies stand to lose money as a result of the Internet and the nature of free and easy sharing of Media is just false. Companies like Spotify, Hulu and Netflix show that you can make money by just changing your business model and making Media easy to access and share - which is the root of all this piracy. Assuming all Piracy is result of consumers not wanting to spend money and wanting access to something they can't afford is just false. Money is a small concern. Even with Software - Open Source or Freeware software companies still make money (Open Office, Mozilla). Heck so many games make money by making majority of the game free to play and easy to access, but charge you money for extra futures - Facebook-style Gaming, and games like Battrick, Fromthepavilion, Hattrick...these are the future.
There is a reason all upcoming artists upload their songs + music videos to Youtube, and give out free albums for download. They're building a fanbase who will then be willing to pay for music/concerts later on. Even Radiohead gave out a sampler of their latest album for free download online and let people pay what they want.
Even Glee (yes, I know many of you hate that show, but bear with me) has entire episodes of it's show free to watch online on it's website, just a day after it is shown on TV (USA only). Yet they have amongst the highest ratings in the USA. How? Why are people subscribing to Fox and tuning in to watch Glee when they can watch the same show for free just a little bit later? Because they want to. They like the show. Having it online makes it easy for viewers to not only get into the show, but show it to others and gain more fans. Having it online lets people watch their favourite moments of the show, or re-watch entire storyline arcs, through a legitimate channel. It allows them to immerse themselves for free, and that makes them want to catch the latest episode, see the latest plot twist or the newest musical number, the moment it is released. And then re watch it later. And share it with their friends. It makes them want to go to concerts, buy the merchandise, and become gleeks. And hey, the website earns money off advertising too. And there is next to no piracy of it within the USA. It's a win-win.
The examples we speak of people in India and China going for cheap pirate versions - yes, it's an issue. But SOPA and PIPA will not address those. Not in the slightest. Not only are websites based in those countries unaffected, but the measures used to impose these restrictions are so weak they can be bypassed by anyone with a little bit of tech savvy. The main issue here is how this will kill innovation and any sort of user-created content based websites in the US, and how this is just 1 short step away from full on Censorship. That's the issue. I agree with you on that.
As for the Grey area - like I said, instead of having it a grey area and arguing and passing laws, big media companies are missing a trick by simply embracing the Internet for what it is and just redefining it's business model.
A great article on this is here:
The Definitive Post On Why SOPA And Protect IP Are Bad, Bad Ideas | Techdirt
Which pretty much says what we've been saying, but better :P