Rhapsody iPhone Client Ready for Offline Playback — Is Apple?

iTunes (s aapl) isn’t the only DJ available on those Apple iPhone and iPod Touch devices. Rhapsody last year joined several other music services on Apple mobile devices for music playback. Many thought the paid subscription service wouldn’t make it through Apple’s approval process, but there was a key reason I thought it would — listeners could purchase songs they liked directly through the iTunes store link in the Rhapsody client. The situation was a win-win for both companies. Rhapsody earns $14.99 a month from iPhone users who want a wide variety of tunes and Apple has another potential point of sale for every one of those subscribers. TechFlash reports that Rhapsody is taking it to the next level — the latest client version, shown off at this week’s South By Southwest (SXSW) event, offers offline listening. Here’s a look at how playlists can be downloaded for offline playback.

I’m anticipating naysayers who predict that Apple won’t approve offline music caching. This time, I think they may be right and if so, it’s not just bad news for Rhapsody — word on the street is that the Slacker folks are looking to add offline music caching to the iPhone client too. I can think of three reasons that Apple wouldn’t allow offline subscription music caching:

Apple bought LaLa for a reason — in December, Apple purchased a music streaming service as part of a perceived paradigm shift. While I didn’t predict the details, I wasn’t surprised by the move in general. We might not have the infrastructure to support it yet, but streaming music from the cloud is coming, just as I said only days before news of the LaLa deal. In my GigaOm Pro report (subscription required) called “Forget Syncing, Music, Let’s Put It in the Cloud!” I outlined how Amazon is already well-suited to offer online music storage and streaming. But Amazon doesn’t have a handset like Apple does. And until the LaLa deal, Apple didn’t have the platform for such a service. They do now — or at least they have the talent and experience of people who do.

Apple redefines existing markets — Apple is good at many things, but perhaps their core competency is in redefining products and markets. Apple didn’t invent the MP3 player, but they did create an iconic one that owns the market. With the iPad, Apple is trying to do the same. The company watched others try the tablet market with limited success and is now redefining the mobile slate. By now, Apple has seen and studied the likes of Rhapsody, Slacker, Pandora, Grooveshark, Microsoft’s Zune (s msft) and others — the market for streaming subscription music is generally defined at this point. With iTunes, the LaLa purchase, and innovative data plans for new devices, Apple is poised to redefine another market.

iPhone OS 4.0 is coming soon — The next version of Apple’s iPhone OS is widely expected to hit this summer. It’s not likely a “point version” but a full step forward, which equates to potentially new and innovative features. While I can’t predict what those features will be, a music subscription service isn’t out of the question now that all of the pieces are in place. Put another way — I wouldn’t expect a new service to debut in an update to the iPhone 3.x operating system. A better fit would be with the next major version, which gives Apple talking points to generate buzz.

Since the new Rhapsody application isn’t yet submitted to Apple for approval, there’s time to get in on this March Madness (or the other one, actually) and make your pick — do you expect this feature to make it through iTunes App Store Approval process?

For the GigaOM network’s complete SXSW coverage, check out this round-up.