The argument is that people use pirating as a demo and then buy the game if it's good, which is completely nonsensical, especially once Steam started with their refund policy.
You are missing the MP3 argument.
Despite the music industry kicking and screaming about Napster, while it was in business with free downloadable music Music industry profits rose more than other time since its founding. The reason was by making the product free, they attracted the largest potential audience and allowed people to discover bands outside of the Top 40 that might be their jam.
This translated into increased ticket sales and increased album sales, because it was learned that while a minority might abuse the system for free shit, most people are willing to buy things they like to support them.
You also have a "Coke on campus" effect; Coca-cola will do everything possible to be the only product on college campuses, giving out large payments and nearly subsidizing the product to be as cheap as possible. The reasoning is that college students are poor schlubs NOW, but in the future they will have jobs and be high earners. If you can capture their brainstem NOW and give them the product free for 4 years, you'll have them as a customer for the next 40.
In games, if you give people a low cost, low risk way to get into the game they'll take it. I would have had much more difficulty recruiting for my 3.5 games if the 3.5 Hypertext SRD didn't exist. One of the biggest issues I have recruiting new people for 4e is no playable SRD exists. 5e, the latest audience D&D edition, has an SRD that puts the 3.5 SRD to shame in completeness.
The problem Tranch Crusade has is it is missing a critical piece: the ability for easily monetize fans and give fans the opportunity to show their support. You can't buy official minis in store easily.
GW's problem is the high barrier to entry. Sure they have army starters, but its like $150. They have Kill Team but that's still $50. The stores are generally absolute bastards aout proxies or other company's models; I don't get kicked out of a concert because I'm wearing another band's shirt.
You need to give an experience as good or better than the pirates give.
Going to videogames, the issue with game piracy is pirates have a better experience. No retarded DRM, no need to depend on the company's servers, and you also have a core of people you have pissed off so badly they'll do anything to not give game companies money.
Personally, I know a lot of people who - especially for smaller studios - will buy games after they pirate them to have them on steam.