"Their arguement is like someone discovering how to copy a Rolls Royce for free. Suddenly all the millions of Rolls Royces on the road being driven by people of modest means represent lost sales?"
I think a potential real world example of this happening is with
synthetic (i.e. lab-made) diamonds. Companies like De Beers are scared shitless because they can no longer create a situation of artificial scarcity and charge massive prices for their diamonds, since they're relatively easy to make in a lab now via CVD.
I was at a conference recently that had a trade show going on and there was a company there selling relatively small lab-made diamonds for cheap (a couple hundred bucks). Now these lab-made diamonds are supposedly very high quality (I've heard that an expert can spot synthetic diamonds specifically because they're flawless, in a way that no natural diamond would ever be). Just for the sake of comparison I wrote down the specs for a small, high-grade diamond they had at the show for something like $300 and asked in a diamond store how much a stone with those characteristics would generally go for, and the answer was in the $3000 ballpark.
I can afford a $300 diamond, but I can't afford a $3000 diamond (at the moment). So in my case buying a $300 synthetic diamond would not be a lost sale for De Beers. I'm sure they'd feel differently though.