More so since we already know they’ve been trying to create a similar service for books. Google selling content is going to happen sooner or later.

1) Offer all 3 of “Purchase”, “Rent”, and “Subscription” options. iTunes for example only offers the first two. Rhapsody, last I checked, only offers the third.

2) Offer all of “Music”, “Movies”, “TV season anthologies (DVD packs), and “live/recent TV” (ie. Hulu). iTunes gives you the first three.

3) Offer physical media (CD, DVD, Blu-Ray), download (mp3, mpeg, etc.), and streamed. And let people do multiples of the same (buy the physical media, and watch it streamed whenever they want, without paying a significant premium). Though, obviously, physical media would only go with purchases and rentals. Downloads would only work for rentals and subscriptions if you do it via DRM. (while I’m not a fan of DRM, rentals and subscriptions are a case where it seems like a necessary evil — just not on purchased copies).

4) Even if you have Subscription, make sure you offer a way to do it when you’re without WWAN. I don’t want to suddenly lose my ability to watch a TV show just because I left an area with signal. Rhapsody’s dedicated devices seem to let you download content to take with you … but they don’t let you do that on non-dedicated devices (the Nokia N800 and N810). Probably due to lack of DRM.

5) For subscription, give people a choice of “pay more, get to commercials” vs “pay a little (or free), but have to watch commercials”. Since this is Google, maybe they could even tie it in to their existing ad service. This would basically be like Hulu, except that you’d have the option to “pay and not have to watch the commercials”.

6) Go the extra yard to get as much content as possible. Hulu and Rhapsody both have the problem that they aren’t very deep in their content. There are Rhapsody albums that are missing songs, for example. For this to really work, you have to get everything, from everyone. I want to be able to watch science and history channel shows, watch main network shows, listen to obscure b-side songs from the 80′s, watch cult movies from the 70′s and 80′s, etc.

7) oh, and, obviously, make this available for Android from day 1. No “windows first”. Android first, then release for the rest (definitely: iPhone, Windows, Mac, Linux; maybe: Windows Mobile and Palm Pre) later.

Give me all of that, and I’d be a loyal customer. I’ll even be sure I buy a second Android device for it (I have a G1 now; thinking about buying the Entourage eDGe when it comes out).

I see Google as the wrecking force against all things Apple, the way Microsoft should have been, but has failed miserably because they care way too much about the profits.

That said, the reasoning you’ve detailed and some of the rumors gone by do make this rumor seem more credible than the amalgam of misunderstandings that were on display over @thestreet.