Piracy is bad for the gaming industry. You don't have to be a genius to figure this out. There are naturally ways to decrease piracy, such as DRM and online components, but these also have a negative effect on the gamers who have purchased the game legitimately. The obvious observation is that piracy will continiue to exist untill drastic changes are made on behalf of the industry, and that enforcing anti-pirate measures will have a negative effect on overall sales.
I think that what the gaming, movie and music industry has to do to reduce the pirate problem is to make major changes in the way they sell their products. Piracy is effective as a means of creating PR for a game, movie or album (just take a look at "X-Men Origins: Wolverine", where an incomplete workprint of the movie was "pirated and released" onto the P2P network, with special effects and several scenes missing, and the effect it had on publicity and therefore sales), but what is most interesting is the torrent-technology. Several game developers, such as Blizzard and EA Mythic, use torrent technology to distribute games online. If all games, movies and music was available online, ready to be downloaded using torrent technology - the very same used by the pirates - how much could one cut from costs related to the "middle man", i.e. distribution, printing, retail's "cut", transport and so on. How much cheaper could said games, movies and music be for the consumer, with no loss to the people who actually created it? Using torrent technology for distribution would require powerful servers and so on, but if said service had the same mechanics as a private torrent tracker, most of the bandwidth related to sharing would come from the consumer - the way the pirates do it. With the rise of high speed internet/broadband, the increase in people using computers to play movies, watch TV, listen to music and naturally, play games, how can this model of distribution not be beneficial to the entertainment industry? I'm certain a lot of pirates have a conscience, and would gladly pay-per-download, or pay a monthly fee to be a part of such a site, especially if availability is good. As with private torrent trackers, people would be required to maintain a certain ratio (download/upload). Such a service could be hosted by the developers, the music/movie agencies or by a third party, and provide the consumers to an easily accessible database of anything they would want in terms of entertainment, to a fraction of the price currently paid.
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In short:
Uhm... I just kinda wrote this in a hurry, so I apologize for any incoherent parts and so on. Anyways, my point is that the entertainment industry shouldn't back away from torrent technology and "the way of the pirates", but adapt and find a way to use the pirate mentality to their advantage and monetary gain. Cutting out the middle man won't be popular among the middle men, but there are still people who prefer a hard copy of their preferred entertainment, whatever that might be. And then again there are the group of people who'd rather have a digital copy, downloaded at high speeds and ready to go, with minimum hassle, for as little money as humanly possible, i.e. the pirates. What the industry needs to do is to find a way to fulfill the needs of the latter, which in my mind is pretty straightforward.
Edit: Survival is reserved for those who are willing to adapt to a new environment. When the seal first encountered the shark, it didn't attempt to sue it for being a faster and vastly superior predator, but it had to adapt a suitable survival strategy. (And yes, I know sharks have been around longer than seals, but in lack of a better metaphor...)
