If the legal distributors can't compete on price, and refuse to compete with quality or convenience, what else have they got?
The problem is that legal sources have issues around trying to controlling when/where/how the content is viewed, which might be the majority of the value in the media (over and above the content itself).
Does the creator truly win out when the content is paid for? I'm using music as an example; not sure how its panning out on the Netflix/video side.
> guaranteed quality
Can you always reliably get 1080p from Netflix? Because you can from TPB.
> avoiding legal entanglements
Which is now a moot point considering the number of judges who have indicated that an IP address in a log can't be tied to a specific end user.
> cheaper traffic, higher speeds
Again, as with quality, I think this depends on your ISP. You'll only get frustrated so many times with Netflix rendition switching or buffering before you'll fire up your bittorrent client, let it suck down 10-20 episodes, and watch at your leisure.
The ads model works as long as its not too painful. 2-3 ads/show? Reasonable. 12+ ads per show (because you're addicted to ad pricing on broadcast, and for the love of god please can't we get that on the web)? Pirate Bay.