&#62; We don't consider compensating producers as an externality where physical goods are concerned, so why is it an externality for intangible goods?<p>That's a good question.  One important difference is that, at the point of which duplication is possible, the intangible good already exists.  Compensating the creator for creating the good may or may not encourage future creations.  It's a sunk cost.  It's also the only cost.