Recent discussion sparked by opposition to the SOPA and PIPA bills has mostly been along the lines of "piracy is bad because it hurts the entertainment industries, but SOPA and PIPA go too far..." I agree with Jonathan Coulton that statements like this make too many unproven assumptions. So let's start from the beginning.
Assumption 0: People should pay money for art
I think most people would agree with this assumption, although for most of human history that wasn't true. The problem with art is that anyone can make it, even if that's not their day job. The people who make a living from art therefore need to be noticeably better at it than everyone else, and if the difference isn't great enough they will just come across as snobs.
I think we have proved in today's society that people will pay money for art, and therefore that some art is worth paying for. One of the problems with the current entertainment industry is that the restrictions put on what we pay for or are able to access isn't worth the price, yet those restrictions exist to make sure people pay the price. But even people who pirate movies and music often say that they would have bought it under different circumstances. So I think it's clear that some art has a monetary value.
Assumption 1: Piracy is a problem
A quick Google Scholar search turns up a few decades-old studies that suggest that piracy has depressed music and film sales somewhere between 5-15%. On the other hand the Swedish government did a study in 2011 that determined the effects of piracy were negligible. As far as I'm concerned the jury is still out on this one.
Some people think this is a big deal. They say that if piracy has actually increased entertainment sales indirectly -- and the argument is usually that awareness drives sales, and a percentage of people who pirate things wouldn't have bought them anyway -- then anti-piracy laws aren't necessary and we should just let people do whatever they want. I think this is kind of disingenuous. If we didn't have anti-piracy laws, everyone would just download everything for free. Anti-piracy laws surely stop some people from pirating music and movies and other things, and if they just disappeared that would probably be Bad.
That said, the underlying question is more of enforcement. What should the punishment be for people who pirate? The MPAA and RIAA thinks the price should be unreasonably high -- destruction of intellectual property and enormous fees. I'm not sure what the right level of enforcement is (other than that it's certainly not what the MPAA wants) but the best answer to this question is to find a way to make enforcement unnecessary by offering entertainment in ways that doesn't compell people to pirate.
There's also a question of whether there is any sort of right to intellectual property (i.e. whether piracy should actually be intrinsically allowed). I don't think this is a question that can be answered empirically. Personally my take is that the current standard for what counts as intellectual property is far too low. But I could write another whole article about that.
So, is piracy a problem? I don't know the answer, but I'm not sure it matters much.
Assumption 3: Hurting the entertainment industries is bad
People like being entertained. There seems to be a vocal group of people who say that the entertainment industries are not doing a very good job of entertaining us, but I think the evidence very much shows the opposite. So what is it that Y Combinator is protesting when they say we should Kill Hollywood?
What people don't like about the entertainment industry is (A) current distribution methods suck and (B) they're too aggressive about copyright enforcement. Sounds like a great opening for a startup to me: start a company that offers entertaining content through better distribution methods while letting people do whatever they want with your content. That would probably mean some sort of television offering (i.e. a set-top box, probably that both streams curated "stations" and lets you choose specific programs you want to watch or record) as well as an internet offering (Hulu-style, but one that would let you download everything without restrictions). I don't know enough about the industry to know if that could be profitable, but it certainly sounds disruptive and attractive to consumers. Surely there is a business model for selling entertainment that does not involve restricting access to content.
If you subscribe to capitalism, you probably believe that if large studios aren't offering consumers what they want, they should die and be replaced with startups that offer better options. If you're mostly concerned about your own job, you probably want to keep the status quo. Ironically, in today's politics it tends to be those with anti-socialist rhetoric who argue for keeping the status quo.
Solutions
There are a couple of fundamentals about making art. First, someone has to pay for it to be made. Second, someone has to pay to be entertained.
Right? Maybe not. Only one of the above might be sufficient. There may be other models too, such as distributing art on a website that requires a subscription to join, and receiving payment based on views or "likes" or some other metric.
In terms of paying for making art, you've basically got two choices: crowdsourcing, and big studios making upfront investments.
Right? Maybe not. Maybe paying for creation isn't necessary at all. Or maybe payment can be a mix of studios and crowdsourcing. Or maybe people could invest money in the success of a movie to fund it (although the MPAA helped make that illegal in the U.S.).
In terms of paying to be entertained, the world is wide open here, since you're basically selling a product like any other. I'm sure there are great ways to sell products that can be adopted from other industries and applied to entertainment in ways that haven't been used yet.
Anyway, that's all I've got for now. I see the current situation as wide open for startups since there are a lot of probably incorrect assumptions about how things should work in the entertainment industry and a lot of dissatisfaction from both artists and consumers. I hope I've helped point out how some of those assumptions can be challenged.