Hollywood's Villain: Kim Dotcom

The following script is from "Hollywood's Villain" which aired on Jan. 5, 2014, and was rebroadcast on July 6, 2014. Bob Simon is the correspondent. David Levine and Michael Gavshon, producers.

Hollywood's always had its bad guys. Think the Joker or Darth Vader. But their biggest villain is a man who calls himself Kim Dotcom. You won't see him on the big screen but, until recently, he ran a service that made it possible for you to see almost any movie you wanted to for next to nothing. Before his website, Megaupload, was shut down, federal authorities say it allowed people to access not only copyrighted films, but copyrighted music, books and video games. They claim he cost the entertainment industry more than $500 million in lost revenue. Hollywood considered him one of the worst pirates ever.

As we reported last January, the U.S. has filed an indictment against Kim Dotcom for copyright infringement, racketeering and money laundering and has requested his extradition from New Zealand, where he lives. That was two and a half years ago, but Kim Dotcom hasn't gone anywhere.

Kim Dotcom was once master of the Internet but these days, his domain is 60 acres of rolling hillside near Auckland, New Zealand. Nice place. The only problem is this larger than life character can't leave New Zealand...when he's not touring his grounds on a souped-up golf cart, Kim is fighting the entertainment industry and extradition to the United States. He is Hollywood's super villain, which is, in many ways, a role he always wanted to play.

Kim Dotcom: I was inspired by the James Bond movies, you know? Where, you know, some characters had private islands and super tankers converted into yachts and space stations and underwater homes. So, you know, I got inspired by that.

Bob Simon: But you're not playing James Bond, you're playing Dr. No.

Kim Dotcom: That's what everybody says.

Kim Dotcom changed his name from Kim Schmitz in 2005 when he started a file sharing service.

It was called Megaupload, and as this ad shows, it boasted the endorsement of celebrities like Kanye West, Will.i.am and Kim Kardashian.

"I was inspired by the James Bond movies, you know? Where, you know, some characters had private islands and super tankers converted into yachts and space stations and underwater homes. ..."

Here's how it worked. If you wanted to send a friend a file that was too large to email -- a wedding video, for example -- you could just upload it onto Megaupload's servers and your friends could click a link to download it. It was a virtual warehouse where people stored and shared digital files.

By selling advertisements and premium subscriptions, Megaupload brought in an estimated $175 million. It became one of the most frequented sites on the Internet. How did it get so popular and profitable? According to federal authorities, by also allowing users to illegally share the hottest new movies, or hit songs, or TV programs, including some CBS shows.

Shawn Henry: Megaupload knowingly created and facilitated the distribution of stolen property.

Shawn Henry is former executive assistant director of the FBI. He was responsible for the Megaupload investigation.

Shawn Henry: No different than if somebody has a warehouse where stolen property is being dropped off. If you created the environment that facilitated it, and you encouraged it, and you incentivized people by paying them to drop off stolen property, I think that you are complicit.

In its indictment, the Justice Department calls Megaupload a "Mega Conspiracy"... a "worldwide criminal organization whose members engaged in criminal copyright infringement and money laundering on a massive scale..." But Kim argues that he is not legally responsible for what users chose to do on his site.

Kim Dotcom: Am I the one who's at fault if users upload that kind of stuff and up-- re-upload it again? Do I have to go to jail for that? Because I didn't do it. I didn't upload these things to Megaupload.

Bob Simon: The indictment called you a pirate. They weren't just charging you with copyright infringement. It was a whole list of crimes: racketeering, money laundering. Where do these charges come from?

Kim Dotcom: Well, they are all derived from the copyright infringement allegation. And-- the racketeering was added on top because in New Zealand, you cannot be extradited for copyright infringement.

Yet federal authorities allege Kim's whole business was built on piracy, offering cash incentives to users who uploaded popular content like movies and music. That copyright infringement allegedly cost the entertainment industry more than $500 million in lost revenue...Kim was getting rich, they say, but every dollar he made was a dollar taken away from the people who actually produced the material.

Bob Simon: How much of a priority was this for Hollywood? How badly did they wanna shut him down?

Eriq Gardner: Hollywood wanted it terribly badly. I mean, this was the No. 1 pirate in their eyes.

Eriq Gardner is a senior editor at The Hollywood Reporter who's covered the Megaupload case extensively.

Eriq Gardner: This was a guy who was-- fostering infringements on a massive scale.

Bob Simon: Any idea how many users there were?

Eriq Gardner: There were-- reported to be about 50 million users on a daily basis.

Bob Simon: To me, I mean 50 million sounds virtually incomprehensible.

Eriq Gardner: To the entertainment industry, those are 50 million people who are not paying $12 for a DVD. Those are people who are not paying $15 for a movie ticket.

In 2010, the Motion Picture Association of America, which represents the film industry, referred the case to the Justice Department. The U.S. then enlisted the help of the New Zealand government, and on the morning of Jan. 20, 2012, after months of planning, their top anti-terror unit took action.

As you can see in these videos taken that day, they descended on Kim's compound as if it were an al Qaeda stronghold. They were working closely with officials from the U.S. Department of Justice and the FBI who were in Auckland helping oversee the raid. It was a scene straight out of a summer blockbuster.

"To the entertainment industry, those are 50 million people who are not paying $12 for a DVD. Those are people who are not paying $15 for a movie ticket."

Wayne Tempero: There was a serious group of individuals here.

Wayne Tempero was Kim's head of security at the time. The morning of the raid he found himself facing down two officers with automatic weapons.

Bob Simon: What kinda weapons?

Wayne Tempero: MP5s. Everybody had side arms on. There were shotguns. I saw people walking around with sledgehammers, everything.

Tempero was tied up and held in the mansion's courtyard. The rest of Kim's staff, his three children and pregnant wife were rounded up as well.

Wayne Tempero: So this is the staircase up to the boss's private area of the house.

Kim had been lying on his bed working at his computer when he heard the ruckus outside.

Wayne Tempero: He walked over here and grabbed this. This is a panic button. He pressed that.

Bob Simon: And that goes through to you?

Wayne Tempero: Straight to me, a text message to me. Police were working their sledgehammers, but couldn't find Kim anywhere.

Wayne Tempero: And they were--they'd done this damage here thinking that he was in the dumb waiter.

Tempero says he was forced to show them where Kim was.

Bob Simon: It's a closet?

Wayne Tempero: It's a closet. But if you push the back of the door--

OK, so this is the Red Room. As you can see, only because of the color of the carpet, nothing sinister.

The police found Kim sitting behind a pillar, not far from a locker that stored a shotgun. To this day, Kim believes the operation was excessive.

Kim Dotcom: This is an overreach of epic proportions.

Bob Simon: But there was a gun in the room?

Kim Dotcom: Yeah there was a gun in the room. But you know I mean you in the U.S., everyone has a gun in the room, right? That's not the reason why you go and invade the home with anti-terrorist forces.

The police weren't finished. They seized his computers, carried away Kim's fleet of luxury cars, froze his assets and pulled the plug on Megaupload. Kim Dotcom was arrested along with three of his associates, and thrown in jail for a month. It was a global operation that sent shockwaves across the Internet.

Bob Simon: Was the Megaupload bust designed to send a message?

Shawn Henry: I think that the judicial process is about deterrents. It's about people understanding that there are consequences for crime. This-- we didn't-- the FBI didn't investigate this case specifically to send a message, but certainly, that's a result.

Kim had always skated on the edge of legality. Before his foray into the entertainment business, he was a hacker and claims to have broken into computers at NASA and the Pentagon. He turned those skills into a successful business advising major corporations on how to protect themselves from hackers just like him.

Kim Dotcom: I'm good at this whole business game.

Bob Simon: You're just a plain businessman.

Kim Dotcom: I'm a businessman. Yeah.

Bob Simon: A plain businessman who, when he was a teenager, hacked into the Pentagon and NASA? Come on.

Kim Dotcom: Well, I-- I have to say that I love being a businessman much more than being a hacker.

Kim has had his hands in many businesses. Some of them met with disapproval. In the 90s, he was arrested for using computers to hack telephone lines and credit card numbers. Then he pled guilty to insider trading...later, was found guilty of embezzlement. White collar crimes.

But in videos he circulated online, he loved portraying himself as a cartoonish action hero.

He used the Internet the way Hollywood's giants have always used the big screen...creating an extravagant persona. There he was on yachts or private planes, and here he is with his wife showing off one of his luxury cars. Check out the license plate. His narcissism had no limits and he was never far from a photographer. When he finally settled down, it was in this modern-day Xanadu, a mansion only he...or Orson Welles...could have imagined.

Bob Simon: Were all these extravagant things here when you bought it?

Kim Dotcom: What do you mean?

Bob Simon: I mean, that's quite a chandelier.

Kim Dotcom: Oh no, I bought that. I like black and white, as you can see, that's a theme throughout the house.

When Kim moved to New Zealand from Hong Kong in 2010, Megaupload was a worldwide sensation.

Bob Simon: By the time you came here, you were already a very wealthy man.

Kim Dotcom: Yeah. I made good money.

Bob Simon: Right. Can you say how much at the time? What were you worth when you left Hong Kong?

Kim Dotcom: Well, we just did a valuation for the company because we wanted to do an IPO, and it was around two and a half billion dollars.

Bob Simon: Two and a half billion?

Kim Dotcom: Yes.

The government says this empire was built, quite simply, on stolen goods. But Kim insists he complied with the law, went to great lengths to remove infringing material from the site. So why does he think the government's going after him?

Kim Dotcom: Because of my flamboyant lifestyle, because of me being German, the way I am. I'm the easiest person to sell as a villain.

Bob Simon: You really think that that's what did it? You don't think there was anything about Megaupload that led them to say and think, "This guy's gone too far"?

Kim Dotcom: I'm the perfect target. And that's why they picked Megaupload.

Bob Simon: Kim Dotcom says he's convinced that he was chosen because he looks like a villain.

Shawn Henry: People sometimes tell me I look like a villain, right. People aren't investigated because of the way they look, or the type of car they drive. They're investigated because there's an allegation that they're involved in illegal activity, that they're committing a crime.

But if federal authorities hoped Kim would be in U.S. custody by now, they are surely disappointed. There has been legal wrangling in New Zealand courts over the warrants police used in their raid. And officials there have admitted to illegally eavesdropping on Kim's communications. Two and a half years after his arrest, the battle over Kim Dotcom's extradition continues.

[Kim Dotcom: I was illegally spied on by the GCSB.]

Megaupload might not exist anymore but Kim seized on the controversy to reinvent himself. Always a master of marketing, he's become the darling of the media in New Zealand and a self-styled privacy activist. He's formed his own political party, and last year, on the anniversary of that raid, he launched a brand new file sharing service.

He is, as always, the star of his own movie. But this time, he didn't write the script.

[Kim Dotcom: Stop this madness. Let's all be friends.]

We asked the Department of Justice, the FBI and the Motion Picture Association of America to talk to us about the case. They all declined. In April, several movie studios and record labels sued Kim Dotcom for massive copyright infringement.