CNET reported that Google is testing a music service inside the company. Citing music industry sources, the report says that employees are testing out the company’s streaming music service, Google Music.

So what’s the holdup? The service is reportedly being slowed by negotiations with record labels and music publishers. It is, after all, tricky to launch a music service without any music.

Google is looking to challenge Apple (if cloud iTunes rumors are to be believed) as both try to make an impact in the streaming music market. But it also is likely to soon face competition from the European service Spotify. Over at All Things Digital, Peter Kafka wrote that Spotify, which has sought a U.S. launch for what seems like forever, is hiring in New York. It still lacks a deal with Universal Music Group and a solid launch date.

Related stories:

Unlimited music downloads from Apple?

Did Apple's Lala Deal Leave A Lump Of Coal In Google's Music Onebox Stocking? Launching In The Cloud This Summer?