It's a pretty big hole, and it's practically impossible to seal. Which is why I don't think we'll ever see "game over" for piracy, no matter how advanced DRM technology becomes.
At this point, I think censoring the internet is the only way for the movies/music industry to win. Sadly this isn't so far fetched.
It's easier than you think. Look at Macrovision. Look at the EURion constellation. All you have to do is make your secure video path emit some kind of signal not immediately apparent to human eyes. In a post-general-purpose-computing world, you can just make consumer-grade devices respect these signals and refuse to record and make professional-grade equipment both insanely expensive and specifically traceable.