And rejection is certainly a possibility.

While other music streaming services have been green lighted by Apple, like European-based Spotify, it’s the on-demand nature of the service that potentially competes too heavily with the iPhone maker’s own iTunes. Unlike traditional Internet radio-type offerings, subscribers can pick a specific song or album from a catalog of eight million tracks for near-instant playback.

In other words, it’s like having the largest iTunes library in the world or kinda.

That is, it would be, if Rhapsody’s iPhone app enabled you to cache playlists for offline playback when you’re outside 3G or WiFi coverage, a feature that Spotify offers, even if like Rhapsody, the app has also yet to be approved by Apple. Rhapsody says it plans to offer caching in a version 2.0 of its iPhone app, presumably taking a one step at a time with regards to App Store submission hell.

Should Rhapsody’s iPhone app be rejected, it could actually help Spotify’s case, especially in the context of the current FCC investigation into the whole App Store submission process. Spotify is a relatively new startup, albeit one backed by the major record labels, and is currently a Europe-only offering, while Real’s Rhapsody has been around for a lot longer and is an American company. Real also hasn’t been shy of upsetting Apple’s legal team in the past either.

Rhapsody on iPhone from Jamie on Vimeo.

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Related Articles at last100:

• Spotify on iPhone approved by Apple
• Rhapsody music service comes to TiVo
• Weekly wrapup: DivX wins Hollywood’s blessing, Nokia’s Linux phone and Windows Netbook, Spotify on iPhone, and more
• Nokia’s Ovi app store launches [iPhone envy]
• LimeWire DRM-free music store launches

Verizon notes that, for the cost of a single CD, its wireless users can subscribe to VCAST Music with Rhapsody for $15 a month to gain unlimited access to Rhapsody’s five million songs. These songs will carry digital rights management to protect against copyright infringement and illegal file sharing. Users can authorize three PCs and three mobile phones for use with the service.

However, Verizon subscribers also have the option to purchase music over-the-air for $1.99 a track, which includes a “complimentary” DRM-free master copy that users can download from their PCs via a VCAST Music with Rhapsody software program at a later time. This software is not available for the Mac.

VCAST with Rhapsody works on VCAST-compatible phones such as the Motorola W755, the Samsung SCH-u550, Glyde, and Juke, and the LG Decoy and Dare. The service also will be available for the Chocolate 3 when it’s available, probably at the end of July.

“We announced today our music without limits strategy, and Verizon is at the center,” RealNetworks CEO Rob Glaser said in a conference call. “By integrating Rhapsody on the PC and mobile, it allows people to get music where they want it and when they want it.”

John Harrobin, senior vice president of digital media for Verizon, was on the conference call with Glaser. He did not offer any insight into the number of people who use VCAST because it is not a subscription service. He did say VCAST has “millions of customers each quarter.”

Rhapsody’s moves, and Verizon’s involvement, is not thought to be a full frontal assault on Apple and it’s market-leading iTunes Store, which also features desktop and OTA downloads. Rather, the executives say, they are embracing the success of Apple services and products and hoping to extend the digital music market.

“The issue isn’t weather Verizon can take down iTunes,” Russ Crupnick, a senior analyst at the NPD Group, told News.com, “but rather can it help grow the market? And I think the answer to that is yes. Verizon is very well positioned for that.”

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Related Articles at last100:

• Weekly wrapup, 30 June – 4 July 2008
• Rhapsody music service comes to TiVo
• iriver dances to the tune of Rhapsody
• MTV, RealNetworks, and Verizon gang up on Apple and the iTMS
• Rhapsody launches DRM-free MP3 music store