Rhapsody Hits 1 Million U.S. Subscribers, Thanks To Invisible DRM. CEO Shaves Head.

Not all of these one million Rhapsody listeners pay for their music by entering a credit card within the application. Verizon Wireless shipped Rhapsody on its LTE smartphones with an option to pay for the music within a cellphone bill, while MetroPCS includes it upfront with pre-paid voice/data plans. (Thankfully for those users, and anyone else with a limited data plan, Rhapsody can store songs locally on the phone.)

The numbers of paying music subscribers are sometimes closely guarded, although deals like that certainly helped Rhapsody score that millionth concurrent paying customer. Neither MOG nor Rdio talks much about how many people pay for their services, and while Spotify counts over 2.5 paying customers worldwide and has made great inroads in the States since finally launching here in July, it has not revealed how many of those are U.S. users. (Update: Slacker tells Evolver.fm that it has 500,000 paying subscribers, and lets people pay on their cellphone bills on “most Androids and BlackBerrys from Verizon, AT&T, T-Mobile and Sprint.”)

According to Reuters’ sources, Spotify had a quarter of a million paying U.S. customers in October — not a bad three months — after it teamed up with Facebook in September, lending credence to Rhapsody’s claim that its one million subscribers makes it the top paid, unlimited, on-demand music in the United States, which is world’s largest music market. As of today, one in 307 Americans pays for Rhapsody, which is pretty impressive.

“We’ve accomplished quite a bit over the past decade, so it’s no small statement to say that 2011 was probably our biggest year yet,” said Rhapsody president Jon Irwin. “I told our team that when we topped one million paid subscribers, I’d shave my head. It was probably the best free haircut I’ve ever had.”

Why is this happening now? Like many other music services, Rhapsody credits portable devices with a great deal of this success. But wait, you correctly note: Weren’t Rhapsody, Napster, and a bunch of other music subscriptions already available on portable MP3 players, like, all the way back in 2004?

True, but Microsoft’s Plays For Sure DRM sucked. A lot.

Subscription services back then required way harder-core digital rights management technology (DRM) than the protected songs sold by iTunes and other download stores. They needed to prove not only that you’re allowed to play a given song, but that you’re still an active subscriber.

Unlimited, on-demand subscription services represented only 8.4 perent of the online music industry this year (link below), but in a sense, they've only just begun.

To manage this tricky feat, Microsoft told me, its engineers built a “secure digital clock” into Plays For Sure-compatible MP3 players. That little clock would time your content out if over 30 days had passed when you’d connected it to a computer in order to prove that you were still paying.

Ultimately, wireless data connections are responsible for Rhapsody’s growth — here’s why. These days, the service (and its competitors) don’t need to use anything like Plays For Sure, because so many portable devices are connected to the internet.

All you need to do is sign in with your username and password on a connected device (Rhapsody counts over 60), and you can listen to as much music as you want without ever encountering any of that ugly, soul-destroying DRM.

It’s still fun to make fun of music subscriptions because they still constitute a small sliver of the market. But these numbers are real, and they show, once again, how the invisible DRM (our coinage) of connected devices and personal authentication makes renting music make sense. Finally.