> many people do indeed watch it illegally
If your wife cant make a living by making films, because people rather copy than pay for copies, she should change her job, because people obviously dont want to pay her for what shes doing. This applies to any other job that gets obsoleted by time and technological advances, there is no reason there should be an artificial exception for films by making laws that simulate the 1950's.
> it seems to me that reducing piracy makes sense as part of a larger strategy.
To me it seems accepting being bullied into obeying and doing exactly what they want. They want people to stop copying, if everybody stops copying, they won. It means that democracy is worthless and that Hollywood gets the final word of how laws are gonna look like, what will be accepted bahavior and what wont.
Hollywood (and you and your your wife) are pushing for keeping copying illegal because you make more money if it stays illegal, but we as a society at large have not yet agreed that copying indeed _should_ be illegal. Many people copy your wifes movies because they do not consider it morally wrong. Your argument to change their behaviour amounts no nothing more than "stop copying yourself, my wife tries to make money selling copies."
> Of course it is my experience that people who pirate content won't listen
I dont have to listen to you the same way you dont have to listen to me. The whole society has to agree whether copying is right or wrong, whether it is objectionable or not, and agreeing usually works through a majority vote. Your wife and Hollywood most certainly dont have the majority on their side, which is precisely why they resort to bribery like democracy never existed.
Although laws currently do exist making copying illegal, the society has not agreed that it is indeed wrong. The laws have been purchased and aggressively pushed from the top down, not decided and agreed upon democratically. It is not the behavior of the people that is wrong, it is the laws that are undemocratic, unjust and wrong, because they do not reflect the natural sense of right and wrong the people have, which should be the basis of any law.
The sole fact that your wife tries to make a living by relying on non-copying does not somehow automatically imply that copying should be wrong for the sole purpose that she can make a living. Maybe your wife simply made a bad career choice. Dont try to retrofit the society to your wifes career choices. Otherwise you also could push a car ban (obligatory car analogy) so your wife can make a living by making horse carriages.
For the sake of completeness: copying is not stealing. It is copying. I know it is hard to grasp for you (and Hollywood), because repeating "copying=stealing" makes your wife (and Hollywood) money.
> When people steal her movie instead of watching it on iTunes (...) it's not any different than taking money out of our pockets.
To anybody else not making money by relying on copying prohibition, this should read:
> When people copy her movie instead of watching it on iTunes (...) it's not any different than not putting money into our pockets.
The only reason why your above sentence sounds the way it sounds is because saying so makes your wife (and Hollywood) money. Otherwise it almost certainly wouldnt.