They don't.
Or at least, piracy is incredibly widespread.
I lately witnessed in person a remarkable device that is available for purchase in Taiwan and, apparently, on Amazon as well. It's a box, similar to a Roku, that costs about $100 and comes with several free streaming apps installed by default.
The user interface is very poorly designed and the apps are glitchy. But the pre-installed apps allow you to watch, for free, hundreds of different TV channels from around the globe, including live sports. There's also a movie app which has just about every movie under the sun. All the movies have Chinese subtitles which you can't turn off, but otherwise it's exactly like watching Netflix.
The downside? Besides being technically illegal, it's possible that this box uses your internet connection for nefarious purposes. It's also possible that it attempts to hack your network on behalf of the Chinese Communist Party. I also wouldn't be surprised if it had microphones to listen to you.
But that's a small price to pay for free movies, right?
If these boxes ever catch on in the West (and it's only a matter of time) it could have major implications on movie and TV studios. I'd also say that tariffs against China seem justified if everyone in China just steals US-made content instead of buying it.
Sketchiness level: 6/10
I hadn’t considered what nefarious purposes it may serve.