European streaming music service Spotify, which is still hoping to launch here in the U.S. before the end of the year, reported a net loss in 2009 of $26.5 million, according to a report in Music Ally.

That’s on revenues of $7.2 million from advertising and $10.9 million from subscription fees. The highest operating cost, of course, is for music licenses. Converting free users to subscribers is clearly the key to the company’s continued success, regardless of whether the major labels insist on it or not.

And they are insisting on it. As Spotify hopes to bring the popular service to U.S. shores, labels are holding the company’s feet to the fire and demanding that Spotify alter its “freemium” business model into something that can bring in more regular and predictable revenue.

Simply put, labels want a traditional subscription service. They’re not going for the unlimited free ad-supported tier that is losing so much money in Europe. But Spotify wants to maintain its free tier in some fashion, which it believes is crucial to acquiring customers.

There are a number of unconfirmed rumors about what Spotify may or may not do to resolve the impasse and hit their 2010 launch date. One is to focus on indie labels and aggregators and launch as a sort of “indie music service,” a la eMusic in the earlier part of the decade when it too struggled to acquire major label content. Another is to restrict the number of times each song can be listened to under the free tier (sort of what Napster tried a few years back, allowing users to stream any song five times for free).

But label sources stress that the proposals discussed for a free tier solution change with each round of negotiation, as both sides brainstorm to reach an agreement. Spotify remains committed to a 2010 launch, however, so it’ll be very interesting to see in what form Spotify agrees to introduce itself to the New World.