Holy smokes! I've been waiting for an economist to chime in on the open access debate and the issue of whether digital content should be priced at marginal cost. All I can say is: be careful what you ask for! The FT article by Eli Noam, a professor of economics and finance at Columbia University paints a bleak picture of the direction the media industry is headed. While I agree with many of Professor Noam's points about the problems for content producers if they are forced by competitive pressure to sell their goods at marginal cost, which for digital goods approaches zero, I don't think that disaster looms for all media companies. The biggest hole in his argument relates to the commingling of broadcast media with exclusive (or user-selected) media. Noam says that "Online publishers cannot charge their readers, except for a few premium providers such as the FT." And states further that "Newspaper prices barely cover the physical cost of paper and delivery; the content is thrown in for free." Well, newspapers have been surviving on the "free" content model for decades. They rely on another source of revenue: advertising. Almost any media outlet designed to reach a large audience with diverse and divergent interests traditionally has depended on advertising revenue, largely due to the difficulties in asking users to pay for a large collection of content when only a small portion is highly valued by them.

However, exclusive content, or what Noam calls premium content, has traditionally been priced and packaged to appeal to a smaller, more homogeneous audience. It's with exclusive content that Noam's argument stands up to scrutiny. Why should exclusive content that is highly valued by a well-defined segment of the population, and only of peripheral value to the vast majority, be forced to price at marginal cost and absorb all production costs even if it results in a loss? It shouldn't. In the media industry, value pricing is essential. With broadcast media, the value has to be set for some low common denominator. But with exclusive media, the value should be reflected in the price.