Shouldn't it be a mixed strategy - as in, taking some of the pirates out completely if possible, and making them pay, and selecting some to bring into the fold as affiliates, while watching them for compliance?

Random reinforcement theory suggests that if you mix the stick and the carrot you will get better results overall.

If everyone gets the impresson piracy just gets you selected to be an affiliate, without consequences, the logical thing to do would be to just create more pirate sites, expecting to be approached and monetized.

So you have to destroy some of them to modify the behavior effectively.