The "damage" is even more removed than you give it credit for. Assuming the goal of the IP owner is to sell the content, the "damage" occurs when the subset of

The "damage" is even more removed than you give it credit for. Assuming the goal of the IP owner is to sell the content, the "damage" occurs when the subset of downloaders who would have bought, don't buy. Clearly not all downloaders are in the category, and some both download illegally and buy legally. There's also a counteracting benefit to the IP owner, if illegal downloads serve to advertise his IP and induce more people to buy. Overall the connection to "traditional, physical theft" is weak.