He launched Megaupload two years before Dropbox. Kim could have pivoted there, then expanded to docs/collaboration. Yes, hindsight is 20:20, but in theory it would have been possible moving from a piracy-centric business model to regular cloud storage/collaboration for businesses and small teams.
Regulatory does not matter if your product does not matter. Megaupload did matter, and did not solve the regulatory problem or change the business model.
Maybe it came too early for the solution or alternative business models to become apparent.
He knew that and talked about and used alledgedly illegal files. He should just not do the drugs himself and fire everyone who eats from the forbidden fruit and he would be fine.
While I have no proof, I feel like the fact that Megaupload wasn't in the US prevented them for using the correct legal loopholes that could have kept them aloft for long enough to grow to a size where they could settle these types issues out of court.
Devil is in the details. Teenagers tend to appreciate things that can seemingly collapse a complex topic into a binary black and white thing. The real world is nuanced.