Let me lay out a few facts for you.
Yes, it's true. And you probably always will be. That sounds grim, doesn't it? It's really not. Competing with free is really a lot easier than you might think, and it's already being done quite successfully.
Look at hulu. I watch a lot of TV there. I could very easily head over to my favorite torrent website and grab the episodes there, but even with commercials I find hulu to be faster and more convenient. I watch the Daily Show and the Colbert Report on their respective websites, commercials and all. Unless I lack a good way to view the shows I like legally, I'll probably avoid torrenting anything.
This is the kind of thing you need to have more of. Easy, convenient ways to legally experience your content. AT the end of the day that's the only way you'll beat piracy.
Of course not. You hear this all the time but it's just not true. Just because someone downloads something is no evidence that they would have bought it otherwise had the free option not been available. This is just spin and lies by copyright holders. Get this out of your heads.
There ARE some people who, despite having money and ways to purchase content legally will always be cheap and download everything they can regardless of what you do. This goes back to my previous point. It does not matter how much DRM or copy protection you build into things, they'll just find a way around it.
If I download a movie and get the movie, but buy a DVD and am spammed with ads and trailers, what do you THINK I'll choose? If I download a PC game and am forced to have an active internet connection to play it or am limited by installs, why wouldn't I just pirate it and install a crack? You're just making things worse for the people that are trying to do right by you and purchase your content legally. Stop it.