It all boils down to one thing: competition. Ironically the studios are competing against themselves, the pirates taking the role of the independent "middle-man," outselling the competition. What they need to do is out compete the pirates, cut prices to make it unprofitable for the illegal street vendor, what the studios lose in the front door with low prices, they'll make up out the back door with volume. Simple economics.
China has unorthodox business practices to say the least, I have a friend in the window/impact glass industry, he manufactures. He's been doing business in China since the mid 80's, he's told me some stories that are so outrageous, that if I didn't know the man so well I would say he's a liar at best, delusional at worst.