By Joseph Menn
SAN FRANCISCO (Reuters) - Digital storage services like Megaupload, which was accused of criminal copyright violations on Thursday, play a small but growing role in a broader piracy problem that continues to evolve and dog the entertainment industry.
Some 3 million Americans every month used Megaupload, which is among the largest digital lockers, the Recording Industry Association of America (RIAA) said. Other entertainment executives said that number surged when other sites popular with digital pirates, such as LimeWire, were taken down.
"When we look at piracy behavior and uncompensated theft of music, a significant portion of consumer behavior migrates toward these locker sites" after shutdowns, said Victoria Bassetti, a music industry consultant and former anti-piracy chief at record label EMI.
"Anecdotally, when we have pre-release leaks, the first week there is a massive amount of consumer trade that goes directly to Megaupload's door."
Peer-to-peer systems like BitTorrent, which have little central coordination and are harder to stop, still have about three times as much usage among consumers as digital lockers, said NPD market researcher Russ Crupnick.
Only about 3 percent of the U.S. Internet audience relied on digital storage for legitimate purposes or piracy in the third quarter, he said.
Megaupload and its ilk may be a bigger factor in video piracy because movies take much longer to download via peer-to-peer networks, Crupnick said. Digital lockers allow anyone to upload, store and distribute links to most forms of electronic content.
The U.S. Justice Department released an indictment Thursday accusing Megaupload's founders and other officers of criminal conspiracy, arguing that they encouraged copyright violations and in some cases copied protected content themselves. Four people involved with the site were arrested in New Zealand.
The indictment cited internal emails referring to piracy and Megaupload's policy of rewarding users whose content was downloaded most often, which prosecutors said encouraged the distribution of prime Hollywood fare.
An attorney for the company said Friday that the site merely allowed users to upload material and that it would fight the charges.
RIAA spokesman Jonathan Lamy said that lockers were "generally the fastest growing form of Internet piracy."
Like other shutdowns, the interruption of Megaupload will send some pirates to rivals but should encourage others to buy or rent content legally, Lamy said.
"The realistic objective is not to eliminate piracy but to make it as inconvenient as possible," he said. "Some of the users you peel off."
The takedown enraged some Internet activists, who launched denial-of-service attacks that temporarily rendered websites of the Justice Department, FBI and big entertainment companies unreachable.
Some of them argued that the arrests showed that there was no need for laws like those that were withdrawn from consideration in Congress this week that would have made it much easier to block access to sites accused of fostering piracy.
But entertainment executives said that they would try again to pass such bills because they are aimed more at attacking demand rather than supply. In addition, many file-sharing sites do not have Megaupload's ties to the United States or allied countries.
"It is not hard necessarily to do something in New Zealand, but it is hard to get people in Russia and China," Bassetti said.
(Reporting by Joseph Menn; Editing by Gary Hill)