Abstract for: Business Dynamics of a Record Company As Influenced By Online Channels

In this study, it is aimed to investigate the business dynamics of a hypothetical record company. The recent declining trend in musical industry in many countries has brought up the issue of free sharing of musical content. A system dynamic approach was taken to imitate a setting where there are both legal and illegal ways of obtaining an album. Special attention was paid to the self-marketing effect of the musical content present in the market. The life cycle of a particular album that is assumed to have a high potential of being popular is simulated. Despite the outstanding self-marketing effect of the shared content, the record company’s profits decrease following the decline in sales due to diversion of people to illegal ways of obtaining the album in the mid-phases of the life cycle. Scenario analyses showed that the company’s benefit from free sharing depends on how the increasing illegal content affects the market. If the diverting effect of illegal content is low, the demand generated is realized as legal sales to a satisfactory extent and thus the company actually profits.