Offer legit customers a better service than those who pirate the game.

IE. GOG :)

Easy, break the content if it's pirated. It happened with Earthbound, Batman: Arkham Asylum, you just need to be creative.

Take a look: http://www.cracked.com/article_19162_6-hilarious-ways-game-designers-are-screwing-with-pirates.html

Basically, it's discouragement by making content unusable or unstable. This also gets around the DRM thing that drives people crazy.

Don't try to "fight piracy". That's a losing battle from the start. Focus on trying to increase sales- providing your customers with good value, fostering goodwill among your target demographic, etc. This should be your primary goal, and trying to fight piracy almost invariably works against it.

Two possible solutions.

1) Offer reasonable pricing and a non-intrusive (or absent) DRM scheme (GOG)

2) Use a service based model instead of a product based model

Alternatively, do a combination of 1&2 where you can play offline for a reasonable price and there are then come up with desirable features that are online driven and only accessible with a legitimate user account.

Wrong.

DRM (or offline copy protection mechanisms, which may or may not be considered DRM) is what detects whether or not the game is pirated. "Content breaking" is something that may or may not happen when piracy is detected (whether true or a false positive), depending on your mentioned "creativity" on the behalf of the developers.

I don't think it can be done, to tell you the truth. Not unless you put the customers in concentration camps and allow them to play games only on camp sanctioned machinery which is unique and only works inside the camp compound, wherein if it is moved it detonates an explosive device inside. Same goes for software. And for the inmat...I mean customers inside, probably.

This.

And if that doesn't happen thumb screws for the people redistributing the games.

And if they still don't learn better, just hack off their hands.

Kill everybody that pirates your stuff. :p

The only perfect solution is to stop making games. That way pirates have nothing to pirate.

Offering a better experience from legal purchases than from pirated versions is a good alternative.

Exactly, the music industry is a very good example for that. Thanks to online-shops and no drm maybe I pay less for an album, but at all I buy and spend much more money than before.

I think the best way to deal with online piracy is to not get freaked out by it.
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They still have the old games to pirate :p
There's no stopping the pirate train, choo choo!

This. Fighting piracy is as futile as the war on drugs.

It's all about offering a better service. It's not just game companies like Steam and GOG are thriving in these "troubled" times when "piracy has run rampant." Things like the iTunes store, the Kindle service and Netflix are all doing very well right now (Netflix's troubles are all their own doing, by the way, and they are still making out) because they offer services that are easier to the average user than piracy. You may hear some clown pirates come on here and claim how easy it is to torrent, but keep in mind that there are many, many people out there who don't even know what a torrent is.

People have to stop buying into unrealistic pro-control arguments as well. You can never stop piracy outright, you can only control it by offering a better service and using currently placed statutes and laws. Also, piracy does not always equate to lost sales. If someone has no way of pirating something, it does not necessarily mean they are going to buy it. They may just have a passing interest, and thus will likely invest their money into another product that piques their interest more.