It's against the ToS with Netflix but they don't really care but they do check your location when you sign up. They are getting money though
Sony should be happy as people are paying for the content rather than getting it for free.
That means more money in the system, more money and competitors to bid for content and that equals more money for Sony (and other producers) in the end.
If I didn't have Netflix I wouldn't be paying their Australian distributors as they are a complete rip off and an old business model that doesn't care for the consumer.
I wouldn't pirate either as I don't mind missing out.
So in the end, distributors can get smart, stop releasing content into different locations at different times with hugely different costs or people will continue to find and view the content when they want, how they want
Also Netflix can't block Smart DNS services, they'll work their way around it. And if they did implement a total block across all known Smart DNS and VPN services then they'd just be annoying their 'legitimate' customers who use these services.
They can't block CC from other locations as what about people travelling or people living overseas with a CC from their original country?
To implement draconian measures to sign up then pay for their service then put restrictions on viewing would turn away too many people
Edit - and what about people that buy DVD's or Blu-Rays when on holiday overseas for movies/shows that aren't released their country yet? Why not target them?
Have the Sony Execs ever walked into a street market in Thailand or Vietnam? Thousands upon thousands of pirated movies and shows. Why not target them?