They provide a service legal or not and function similarly to a black market which is a reaction to an unsatisfactory supply (not enough to satisfy demand or quality is unsatisfactory). Though unlike a traditional black market, they provide this service for free.
But whether or not there are providers, its you the consumer who decides whether or not to initiate transactions with them(IE Download).
So, what you're saying is that stealing a product is fine, as long as the supply is 'unsatisfactory' (i.e. there isn't enough of it to go around, or its too expensive, the planets aren't aligned right, etc.)
While it may be excusable (to a point) when applied to essentials for living, like food, water, air, and the like, applying this line of reasoning to luxuries (such as video games) is, quite frankly, absurd.
Besides, now-a-days they can provide a superior product because many companies have shot themselves in the foot by adding those terrible DRM systems that punish the paying end users - case [in] point Bioshock. At least they weren't stupid enough to charge per activation like EA.
The blame for that lies with the pirates, and the pirates alone. If they did not enable theft by proxy, there would be no motivation for companies to implement these draconian DRM systems to begin with.
Bottom line, people will get their games and media from the source they like the most. Whether its the little Indie Developer they want to support, the big faceless corporation that does only 2 patches for a game before leaving it for dead, the website that hosts free out of print games, or the hacker that removes crappy DRM.
DRM exists because
the pirates are distributing software for free. You are asking me to believe that the tail is wagging the dog.
And I disagree with your 'compete with free' arguement. You can by offering support which pirates do not. You can accept feedback and patch and update the game which pirates can't do. You can make customers feel like the money they pay is going towards developing new games that the customers want which the pirates can't do.
I fail to see your point. The avaliability of the free game decreases demand for a product, which in turn decreases the value of the product, which reduces the profit margin, which makes it all that much harder to do these things to begin with.
The current business model of disposable games that alot of the major publishers have is what's really killing them. If you take a game like Starcraft that is STILL going strong after 11 years and compare it to something like Tiberium Wars that's a imbalanced disposable eye candy that said FU to story continuity, then its fairly obvious what the difference is. Blizzard supported their game, tweaked it until it worked and worked with the community. EA patched their games a few times and walked off to do the expansion. If you weren't a die hard fan, do you really want to buy a game like that?
This is all rather irrelevant. If I steal a bucket from somebody, it doesn't particularly matter whether its a good, sturdy bucket, or a useless, oxidized dish with holes in it; I'm still stealing it.
Look at Medieval 2: Total War. AWESOME game, very pretty but horribly bug ridden and came out kinda half finished. Do you really want to pay for a game like that? Sega barely let them put out more than 2 balancing patches. Creative Assembly had to fight for the third one to finally fix alot of the game breaking bugs.
Replace any of these products with something analogous that isn't a video game, and your statement immediately becomes ridiculous. Think about that.