New media companies listed on Europe's fledgling technology exchanges have had a torrid time in recent months. Not so Italy's Vitaminic, an online music venture, whose share price on the Nuovo Mercato has soared more than 150 per cent since the beginning of 2001.

Analysts are puzzled to explain this intense interest in Vitaminic at a time when investors in other e-commerce companies are rushing for the exit.

There are many websites like Vitaminic that let you download MP3 music files produced by obscure groups and small record labels. Few, however, have been able to turn this into a viable business.

Vitaminic seems better placed than many and claims to offer Europe's largest legal online music catalogue containing thousands of MP3 tracks from more than 20,000 artists and over 600 labels from all over the world. It runs ten national sites in Europe and the US and 70 per cent of traffic comes from outside Italy.

The company was founded in Turin in 1998 by Gianluca Dettori, who previously ran the Italian arm of Lycos, the internet portal. Like many online music sites, the creation of Vitaminic owes much to the founder's passion for music - he played the drums in several bands in Turin.

The enthusiasm was catching and in 1999 Vitaminic managed to raise E770,000 from Kiwi, the venture capital fund run by Elserino Piol, a veteran of Italy's IT industry. Last October, Vitaminic raised E31m through its flotation and the company seemed on the fast track to big time.

"Vitaminic is one of the best companies in Kiwi's portfolio, strengthened by its quality management team and the enormous potential of the internet music market, which we believe will be one of the most promising sectors in the next few years," said Mr Piol, speaking at the time of the flotation.

Nevertheless, in today's chillier climate, investors are looking for more than promise to justify continued backing of heavily loss-making dotcom start-ups such as Vitaminic.

In its most recent financial results, the company reported revenues of E669,000 for the fourth quarter, a rise of 68 per cent on the preceding quarter. Losses rose 37 per cent to E5.90m, but the figures are distorted by the flotation costs.

The lion's share of Vitaminic revenues, 72 per cent, comes from advertising and 27 per cent comes from licensing content to other companies. The revenue generated from users paying to download songs is negligibly small.

"E-commerce revenues are growing strongly but they still represent a marginal amount of the company's revenues," says Vitaminic.

The problem affects all online music sites. Consumers reason that if they can download hits from major artists for free - albeit illegally - from Napster, the immensely popular MP3 file-swapping service, then why should they pay to download dubious quality recordings from no-name bands.

Last month's court ruling against Napster aims to clamp down on this illegal distribution of copyright music material. At first sight, that might seem to make life easier for the hundreds of websites hoping to make money from online music.

But experts say the Napster ruling may also encourage the major labels to wade into the murky waters of MP3 music and that could hasten the end of independent music sites with precarious business models.

Vitaminic is determined not to fall into this category and it has recently made moves designed to align itself with the mainstream music business but without alienating the estimated 1.2m monthly visitors who come to Vitaminic to hear unsigned bands and musicians.

It has recently struck deals with three of the big five labels - Universal, BMG and Sony Music Entertainment - which will provide downloadable tracks from top artists for purchase on the Vitaminic website.

The deals are initially limited to the US, where Vitaminic has been operating for around a year, and there are also restrictions on the range of artists that some labels are prepared to make available via Vitaminic. Nevertheless, Mr Dettori sees these agreements as important stepping stones in Vitaminic's transformation into a mainstream music site.

The biggest push in this direction has undoubtedly come from the court ruling against Napster, which has given a new commercial focus for online music. For decades, the music industry has been fighting a war against piracy, which runs the gamut from relatively innocuous bootleg recordings of live concerts to massive counterfeiting of music CDs in purpose-built factories.

Mr Dettori says the industry has learned to live with a "physiological" level of piracy that hovers around 20 to 30 per cent. He thus believes that even if Napster and similar MP3 file-swapping systems are not completely stamped out, online music will become acceptable as a mainstream distribution channel if online piracy can be contained around this level.

"Piracy on the internet will be reduced to acceptable levels by the combination of legal enforcement, catalogues, secure technology and offering a positive consumer experience," he recently told shareholders.

Online music today has failings in all these areas and remains a niche market, at least in the commercial sense, but Vitaminic, like many a hopeful young band, believes the big time is just around the corner and so, apparently, do its investors.