RealNetworks announced today that its Rhapsody application for the iPhone and iPod Touch has been accepted by Apple for inclusion in the App Store.  iPhone and iPod Touch owners who subscribe to the Rhapsody To Go music service will be able to download the app for free and use most of the service’s functionality on their devices.

There are many music applications for the iPhone, and there are bound to be many more.  But this is a breakthrough: a subscription on-demand service for a wildly popular device that has been a bastion of the paid-download model.  Rhapsody To Go subscribers will be able to stream any music track from Rhapsody’s vast library at will through their iPhones.

The only thing they won’t be able to do with their iPhones that they can do — in theory — with Rhapsody-compatible portable devices is transfer downloaded tracks for local playback.   That’s because RealNetworks can’t use the iPhone’s native FairPlay DRM to protect subscription downloads, and it can’t (or at least didn’t) implement its own DRM on the iPhone.

I say “in theory” above because Rhapsody’s portable device transfer functionality does not work very smoothly.  (The same is true for other subscription-on-demand services, such as Napster.)  I’ve documented elsewhere my travails in getting my new Verizon Wireless Blackberry Tour to work with Rhapsody To Go, as it is advertised to do (it still doesn’t work); now my Rhapsody PC client won’t even work with the Sandisk portable music player that I specifically bought for use with Rhapsody.

But with network-enabled portable devices, it’s a whole new ball game.  Assuming that a signal with decent bandwidth is available, streaming takes a lot of the complexity out of getting music onto portable devices while preserving rights.  Other “all you can eat” mobile music services exist (particularly in Europe), but they don’t offer the library size or music discovery features that Rhapsody does.

The Rhapsody iPhone/iPod Touch client will expose Apple users to a world from which Steve Jobs has sheltered them.  Apple has avoided subscription models for music, apparently for a number of reasons, including an unfamiliar customer experience as well as technical complexity in the iTunes ecosystem.

I have thought that subscription services have suffered unfairly from a lack of marketing resources.  Paid music subscription services are an unfamiliar model to most users: they aren’t permanent downloads, and they aren’t radio.  It takes a lot of education to get people interested in new models, and the press has been decidedly unfriendly, focusing on the lack of permanent ownership instead of the value to music listeners who get tired of hearing the same songs over and over.

Rhapsody on the iPhone is the best chance yet for the subscription model to find a substantial audience.  It has the iPhone’s installed base and, one hopes, ease of use that just doesn’t exist in Rhapsody’s current portable device model.  Being a fan of subscription download services, I hope it succeeds.