This could work, but only if they treat the people affected as customers and potential customers rather than as criminals.

- make it easy for the legitimate customers to actually watch their streams. Instead of "too many streams in use", try "click on this link in your email to start watching"

- make it easy for free-loaders to watch. Instead of "too many streams", say "click here for an instant 3 month free trial!"

Or something like that. You have people who want to watch your stuff. That's a very valuable lead, don't throw it away by offending them.