Jeremy Warner's Outlook: Is Goodyear getting out at the top? Whatever the answer, there's a lesson here for others

Cheeky but correct message from Jobs; Equities will always win against gilts
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The Independent Online

Never outstay your welcome is a lesson Chip Goodyear, chief executive of BHP Billiton, has plainly taken to heart in deciding to bow out from the world's largest mining finance house while he's still at the top of his game.

He's only 49 years old, and he's been chief executive for just four years, yet, if he was ever tempted to stay the course, the salutary lesson of Lord Browne at BP will most certainly have persuaded him otherwise. However accomplished a chief executive might be, the cycle will eventually always turn against him and the legacy will as a consequence be remembered as a dismal, rather than a glittering, one.

It is many years since the chief executive, once he'd achieved these rarefied heights, could expect to stay there unchallenged until he received his gold watch. Few nowadays seem to survive more than five or six years. Many can expect to get chopped at the first sign of trouble long before then.

For others, the trick is to dress the company up sufficiently well to make it a target for private equity or Johnnie Foreigner, and then retire with a barrow load of money to the country. Yet a growing number, including James Crosby at HBOS and now Mr Goodyear at BHP, are managing to get it right enough to choose the manner and timing of their departure. I suspect we'll be seeing the same thing with Stuart Rose at Marks & Spencer within a year or two.

Mr Goodyear's name alone suggests a sunny disposition and he's certainly lived up to it with yesterday's generous helping of goodies. Thanks to booming commodity prices, there's more money gushing out of his mines than he knows what to do with. Even after paying for the $10bn buy-back programme announced yesterday, a 14 per cent rise in the dividend, and a capital spending programme totalling $17.5bn, Mr Goodyear still has cash to spare to pay down debt.

Can such bounty possibly last? Despite the fact that he is leaving, and a share price that suggests some scepticism, Mr Goodyear thinks it can. He doesn't use the word "supercycle", but that is essentially where he is coming from. China and India have put a rocket under demand, in a manner not seen since post-war reconstruction in Europe and Japan.

Even supercycles come to an end eventually. Yet by the time this one runs it course, Mr Goodyear will be long gone.

Cheeky but correct message from Jobs

Part of Steve Jobs' genius as an entrepreneur is that he is also a brilliant showman. Somehow or other, he always manages to be on the side of the angels. It should therefore come as little surprise to see the Apple chief executive wading into the music download debate to champion the consumer-friendly cause of open-access systems that would allow music to be sold online without copyright protection software.

It all sounds a little arcane, yet it goes to the heart of the way music is sold over the internet. An open letter on the issue, posted by Mr Jobs on the company's website, is the talk of the town.

Apple would embrace open access "in a heartbeat" given the chance, Mr Jobs insists. By so doing, a brave new world would be opened up in which iPod users could download music from rival online stores and rival MP3 players would be able to use iTunes to buy music. Everyone would win from such a system, he argues. Only the implacable opposition of the music majors prevents it from happening.

But hold on a moment. Isn't it the exclusivity of the iTunes music store that has helped power Apple to a semi-monopolistic position in music downloads? Mr Jobs seems to be biting the hand that feeds him in arguing that the digital rights management (DRM) system which Apple uses to protect its music against theft should be abandoned.

The reason is not hard to find. Apple has been the subject of numerous anti-trust complaints in recent months, particularly in Europe. Most of them demand that software constraints placed on music downloaded from iTunes should be removed, so that the site becomes compatible with other portable music players.

What Mr Jobs is saying is that they have chosen the wrong target. He's not the main mischief here, but rather it is the music majors, none of whom would sell their content through iTunes without protections to stop the music leaking out into the "free" download market. It becomes much harder to combat illegal file sharing if everything is made compatible with everything else.

Hmm. Critics are right to be suspicious of Mr Jobs' motives. He's managed very effectively to use Apple's DRM system, FairPlay, to build a dominant position in the "legal" download market. The more consumers use iTunes, the more they become locked into using iPods too. Buy an iPod and you are also highly likely to use iTunes, and so the networking effect goes on in a virtuous circle of growth.

Apple is now so dominant in this market that it might even benefit from a more open environment. What it would lose in terms of iPod sales to rival players, it could easily make up for in greater sales through its iTunes online store.

Yet suspicion of Mr Jobs' motives shouldn't be allowed to detract from the merits of his argument, which is a compelling one. The music industry obviously has every right to protect copyright. Yet the point about digital rights management systems including the one used by Apple is that they have largely failed in that purpose.

According to Mr Jobs, only 3 per cent of music on the average iPod is purchased from iTunes and protected with DRM. The rest is unprotected, having come from CDs as well as both legal and illegal file sharing.

In other words, the music industry has already lost the battle, thanks largely to its own, wholly unprotected, format, the CD. It is a curiosity of the music majors that an industry born in the crucible of free love and inter-generational rebellion should have become so Luddite in its approach to new technologies.

Thanks to Apple and others, people are beginning to pay for their music again, even on the internet, but only in the ridiculously encumbered form Mr Jobs complains about. Think how much better it might be if the market is liberalised.

Despite the traumas of the past six years, the industry still believes it can somehow hold back the tide and, by so doing, defend monopoly, position and a previously lucrative annuity. In the long run, it simply won't wash. Why is it that the music industry has such difficulty with the idea that the best way into the consumer's heart is not to pickpocket him but to provide him with value for money? Failure to do so is what has caused the piracy and illegal download phenomena. When consumers start stealing your product, it ought to tell you that something is wrong. The industry is in danger of repeating this mistake with DRM.

Equities will always win against gilts

Barclays Capital and its predecessor companies have been publishing their annual Equity Gilt Study for 52 years now, and the message is always broadly the same - over time, equities substantially outperform the alternative asset classes of bonds and cash. You'll be pleased to know that the latest study, published yesterday, doesn't deviate from this finding. Last year was a corker, with equity returns far above the long-run average, while gilts and index-linked markets delivered negative real rates of return.

Nor do the authors think there is any likelihood that the challenge of climate change will significantly alter this paradigm. To the contrary, they conclude that the impending energy revolution will provide a big stimulus to the global economy by forcing change and innovation on societies. I wouldn't be quite so Panglossian myself, but one thing does seem certain. If the world hasn't by then been reduced to a fireball, 52 years from now Barclays Capital will still be concluding that, over time, equities always hugely outperform bonds.

j.warner@independent.co.uk

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