(EDIT: sorry for the rant, but this stuff really gets under my skin. If you are too cheap to spend 8 bucks on an indie game, SAY SO, don't come up with rationalizations about how the world is a better place for it)
Makes sense to me.
It's not as if kids rigorously budget their money and have a "video game" line item which cannot be exceeded. If they could easily sneak into movie theatres or hockey games and never get caught, they'd do that too and spend the leftover money on something else.
I thought he simply said they would spend the same amount. So they would consume less games and so have less "cultural" experiences if they couldn't pirate some games:
So, like, if they'd pirated Gears 1 and bought Republic 2 [made up names] then next period they might have bought Gears 2, but then would have pirated Republic 3 and ArmsRace 1.
With stronger anti-piracy measures Gears 1 comes out at the same time as Republic 2 but they can only buy one so they get Republic 2. Next period they get Republic 3 because they don't want to risk the new ArmsRace 1.
In both scenarios they bought 2 games - ie spent/bought the same amount. In the second they played 3 more games than in period 1. The makers of Gears benefited from piracy by winning a convert to their franchise (but notably the industry didn't gain in this scenario).
However, despite the high piracy rates on PC platforms, good games still do well.