How to compete with "free"

A comparison of the film environment in Nigeria, India, and China, three countries in which piracy in rife.  What lessons do they hold for Hollywood?

1) Price your copies near the cost of pirated copies. Maybe 99 cents, like iTunes. Even decent pirated copies are not free; there is some cost to maintain integrity, authenticity, or accessibility to the work.

2) Milk the uncopyable experience of a theater for all that it is worth, using the ubiquitous cheap copies as advertising. In the west, where air-conditioning is not enough to bring people to the theater, Hollywood will turn to convincing 3D projection, state-of-the-art sound, and other immersive sensations as the reward for paying. Theaters become hi-tech showcases always trying to stay one step ahead of ambitious homeowners in offering ultimate viewing experiences, and in turn manufacturing films to be primarily viewed this way.

3) Films, even fine-art films, will migrate to channels were these films are viewed with advertisements and commercials. Like the infinite channels promised for cable TV, the internet is already delivering ad-supported free copies of films.

The main point is that squelching piracy is not going to be tenable in the long run.  If people can save money by getting the same good at a much cheaper price, they will.  The solution is twofold: compete with pirates by offering your (legit, nonspywared, user-friendly) wares at comparable prices, and produce something not replicable, with high capital costs, where you can really milk the margins.