Every time this topic comes up I'm reminded of The Pirate's Dilemma [0], which is a great read that I recommend. The way the author presents the problem, using history as a reference, is that when "pirates" come to play and achieve acceptance by the masses (basically everyone "pirates" sometime at this point because people like what they're offering) you basically have two options. You can compete with them and potentially win big like Netflix or iTunes. Or you can fight against the change to the bitter end. History would suggest that the first option is always the better one yet the second option seems to be what the incumbents almost always choose.

[0] http://www.amazon.com/Pirates-Dilemma-Culture-Reinventing-Ca...

I just finished reading his book "The Pirate's Dillema" and highly recommend it.

He talks about innovation through piracy and how more and more industries are being opened up through piracy - music, software, etc and how at one point the piracy becomes main stream enough that the corporations need to compete at the pirate level.

Definitely a recommended read: http://www.amazon.com/Pirates-Dilemma-Culture-Reinventing-Ca...