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I pay that for Zune, which is quite similar, and would love to have access to the zune library from my iphone. I pay that right now just to have music to listen to at my desk, and adding it to my phone would just be a bonus. Maybe if the iphone was the only place you listened to music it would be a tough sell, but I think the subscription model is right on, and am looking forward to it being supported on more devices.
They could have saved themselves a lot of trouble by simply creating an iPhone optimized website for Rhapsody with a simple subscriber login.
No approval from the app store necessary.
Rhapsody is not really expensive when you count the fact you don't have to buy music. Itunes would be driving me to the poor house if I bought all the music I listen to and have in my library. It really is a good service.