It is the classic case of what happens when you apply the old rules (stuff like Schengen) to completely new areas where they don't apply at all.
The Internet is still a completely new, ever-changing landscape and politicians are stuck spinning their wheels in the mud as special interests (such as the MAFIAA) demand something, anything be done when the new model does not run parallel to their profit motive. So the easy solution is to just slap older laws and regulations over the top like an ill-fitting band-aid and hope it works. MAFIAA wins. Politician wins. Citizenry loses, as per usual.
The council is the executive branch of the EU, a bit like the President of America, except with a lot more power (the President of America doesn't have much power on domestic issues). For example, one of the things that the Council has the power to do is pass new laws, and they can often choose not to put it to a vote in the EU Parliament. The EU Parliament is elected, but not many people vote or really take an interest in it (good luck finding someone who can name one of their MEPs, or any MEP for that matter).
To say that these people have short-term interests or that they are beholden to the electorate or something is factually mistaken. There is no such accountability of democracy.
Years ago one could get copied tapes and access banned materials in flea markets and back rooms. It was illegal and yet people did it.
Neo-Nazis traded banned reading materials just as Christians traded illegal bibles in China.
While the internet has made the flow of information easier, it's not the case that it invented the practice which has probably gone on since the invention of speech.
All the internet has done has given us the ability to get involved in illegal practices much easier than they did before.
Let us not forget all that physical hardware is somewhere and somebody's electrical infrastructure is powering it.
OSI - Level 1.