A method of managing digital rights comprises the following steps. First, a physical electronic key containing a first activation code is provided to a requesting user. Second, locked digital content is provided to the requesting user. The digital content is encoded with a second activation code associated with the first activation code. Third, the locked digital content is received in a playing device that reads the first activation code and determines whether the first activation code is associated with the second activation code. Fourth, the playing device is enabled to unlock and play the digital content if the first activation code is associated with the second activation code. A digital right management system for implementing the foregoing method is also disclosed.