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By Joey Gardiner, 13 February 2001 16:40

NEWS German media group Bertelsmann, which owns big five record label BMG, broke ranks with the rest of the recording industry in October last year when it agreed a deal to legitimise Napster. But now that the ruling looks likely to lead to the demise of Napster, that decision looks hasty. In a written statement, Bertelsmann says the ruling doesn't change its policy, but makes it intent on redoubling its efforts to find a "mutually satisfactory solution". However, analysts have raised questions as to whether Bertelsmann is in fact re-evaluating its agreement with Napster - thought to be worth anything between $2m and $50m. Bertelsmann has also been unable to persuade any of the other big five music companies - EMI, Sony, Universal and Warner Bros - to sign up to the deal. This means the only music Bertelsmann could make available to a legitimate Napster would be that produced by BMG artists, along with the output of a few independent labels. Mark Mulligan, analyst at Jupiter MMXI, said Bertelsmann has invested a lot of time and money in trying to make the deal work, but may now have to count its losses. He said: "Bertelsmann can now offer, at best, a devalued service. Its gamble looks in danger of not paying off. It can still call it a day and get out." The uncertainty that surrounds Bertelsmann's current position is emphasised by the lack of information on the nature of the company's investment in Napster. In the deal struck last year, the only money that changed hands immediately was in the form of a loan to develop a fee paying service - thought to be in the region of $2m. Further investment in Napster is conditional on this legitimate service being set up. Paul Myers, CEO of UK file-sharing service Wippit, said Napster can't be converted into a subscription service, because changing to a fee-based model will open it up to compensation for free file sharing in the past. Myers said: "Bertelsmann jumped the gun on this one, and if it's sunk money into it it's made a big mistake." A spokesman for Bertelsmann refused to comment any further, except to say: "Bertelsmann's agreement with Napster is forward looking, whilst the court ruling deals with yesterday's music industry."