Competing with piracy is not exclusively about providing a cheaper service, but about providing a more valuable service. I don't understand why you think competing with piracy would be some tacit approval of commercial exploitation of piracy -- which is where the law should draw the line (for as long as practical). This hole in your logic underlies your entire retort.
For instance:
> but at the end of the day content is content, and must be paid for by consumers or advertisers or you would see a _drastic_ drop in the quantity and quality of content produced.
Why do you assume providing a better service to your customers means handing out content for free? If pirates can provide a better service for free, why are you providing a worse service at all? If anything, you should be giving people their money's worth or better. This is my point: they are doing _nothing_ to drive customers away from piracy. I'm not even talking about lowering costs.
In light of this, I found it hilarious for you to say:
> (the content industry understands this which is why they fight for measures that make piracy less convenient and constantly reminds you that piracy is "wrong".).
It is interesting that in your list of content industry "responses" you forgot to mention the things they do to make legitimately purchasing/enjoying their content less convenient. On the contrary, they have done little to make piracy less convenient. We're talking about stuff that has no effect on their profit margins or business model, that they do anyway.
In that sense and context is where we state "compete", so no, it is not born out of cognitive dissonance. Replace that with desperation and you might be closer. In the end, competing with piracy as a service is only part of the battle. Alternative models for subsidizing content production will have to be embraced eventually, but I'll leave those discussions for a rainy day.