Netflix requires a subscription to stream. DRM is irrelevant.
So if netflix streamed their content with no-DRM (which none of the content companies they license from would allow, but we'll skip that fact) you assume no one would just get a subscription, copy their entire catalouge, and freely distribute it? Doesn't sound like a very sustainable business model to me...
However, if, say, there's a particular movie that is available on netflix/hulu which you want to distribute freely for whatever reason and you are technically savvy, no DRM(short of netflix/hulu controlling the actual hardware you're watching from) will prevent you from doing so.
Therefore, DRM offers no additional protection beyond what a regular login cookie-based system with rate limiting would offer.
http://thepiratebay.se/search/house%20of%20cards/0/99/0
I don't see Netflix going out of business because of this.
If they streamed videos with no-DRM, everyone with a subscription would easily grab a copy of whatever they want. And all it would take is copying a file and sharing it with friends/family to have it spread. This might not seem like a huge difference, but honestly I think it would be. It would lower the barriers of sharing to the point that everyone could do it. Only those who hold onto a moral belief in not committing copyright infringement wouldn't participate. I think the past has shown that these people are in the vast minority.
Besides Youtube is a free service, that everyone basically assumes will continuously be there. You're bringing up non-related factors.
http://rg3.github.com/youtube-dl/
I don't believe that someone would cancel Netflix because they happened to have ripped all of the things they are interested in. The value of Netflix is accessing an enormous library, vastly bigger than you could store (changing all the time!) and watching an item that you feel like watching at this time. A Netflix subscriber can't exactly predict every single item they'll be interested in until the end of time, rip them, then cancel.
Even if there were a few people that did this, they would make up an incredibly tiny proportion of paying users, and they'd likely be akin to the digital hoarders that have TB of movies downloaded.
That's because YouTube content can be trivially shared with other people.
Stop the sharing and pretty sure you would start to see piracy.
As for picture and sound quality being terrible, simply not true. Recording from a projected image is one way to do telecine, and it works fine if you can set it up properly. [1] A half-decent telecine is very different from surreptitiously recording a film in a cinema.
The stream will be re-compressed but this isn't such an issue as many people think. Back when TV was recorded on analog tape in the 90s, you were allowed 8 generations of copying and it would still be considered acceptable for broadcast (for news).
[1] "The quality of a good telecine is generally comparable to a DVD without any post-processing." http://en.wikipedia.org/wiki/Telecine_(copying)
But if every subscriber could simply right-click on download because they have ZERO DRM that would be very different. I won't drone on because I already stated my case to another comment. I don't see why you guys keep pressing this point about some tech savvy people being able to get through DRM.
In order to allow someone to consume your encrypted content, you must give them a valid decryption key, in some form. If you can view the content, it is literally impossible to prevent a determined user from copying it, either digitally or through the analog hole. In current computer systems there is no way to prevent making a high-quality digital copy of an encrypted media stream.
Also, since we've developed a network to propagate information around the planet at a terrific rate, that one determined user's ability to share that content is limited only by the number of people who [a] are interested in the content and [b] have the (lesser) technological skill required to obtain a copy, via file sharing networks or sneakernet.
DRM is pure snake oil. It does not and can not do anything to prevent content distribution. The only possible outcome is to inconvenience legitimate use -- thus degrading the value of your product versus the pirated media. You're already competing with "free", you might want to avoid stacking the deck further against yourself.
The ultimate conclusion here is that enforcing copyrights on digital works is impossible. It's not practical to close the digital hole, and impossible to close the analog one. I'm sorry if that impacts your business model.
DRM has completely failed at preventing people from pirating content; and yet, companies selling content seem to be doing plenty well at it. Why do we keep insisting that DRM is necessary or else people will pirate all of the content, and thus making our software and standards more complex, more flaky, and work against the interests of users, when the existence of piracy is obviously not destroying the content providers now?
You know what's preventing them from making more money? The fact that because of complex licensing schemes, DRM, and the like, I can't be guaranteed that if I buy content I can play it on the devices that I choose to use. If I pirate a video, I can play it anywhere. Content producers are shooting themselves in the foot because of their fear of piracy; piracy works better than buying the content directly, and will continue to do so as long as they insist on DRM.