Overshadowed by the Emmy Awards and Jewel’s Non Sequitur song on Sunday night, Gizmodo pointed to an article from the Financial Times with the blunt headline, Google plans pay-per-view films.

FT’s entire article can be summed up as:

YouTube and “Hollywood’s leading movie studios" are going to offer streaming rental services “by the end of 2010."
The release format is believed to be $5/Rental.
There is nothing else confirmed, denied or even on the table.

ReadWriteWeb has a quick history of YouTube’s number game when it comes to Google’s own income citing Forbes’ own 2008 number crunching that YouTube made up $200 million of Google’s $13 billion. This undoubtedly gets better with the decision in June that Viacom can’t sue YouTube after mishandling DMCA threats.

But that doesn’t mean the rental process is without a caveat. YouTube quietly tried this in January under the guise of a Sundance partnership by releasing five films (three ‘new’ and two Sundance alums) for $3 rentals. While out in Park City, Karina Longworth of the L.A. Weekly did the Internet Slogging and discovered the films received no push from YouTube and were all being negatively voted off the front page by users who feared exactly this—YouTube daring to “charge" for a rental.

Even scarier for a director, as she wrote:

If indie films are a questionable fit for the YouTube audience, another big argument against the experiment is that a ten-day rental window online could “cannibalize" the potential to sell the film later through other outlets. Theatrical distributors have historically expressed little interest in films that have taken a major distribution step in between the festival circuit and theatrical, based on the logic that every film has a finite number of potential viewers, and that every audience member can only be “exploited" once.

But the Sundance/YouTube deal worked out for no one. Directors barely saw a profit from the rentals that were open to constant negative comments and being voted into obscurity by purists—that in itself is darkly ironic when Sony’s CRACKLE is a studio-sponsored channel stuffed with a grab bag of complete films like His Girl Friday and…High School High.

Best of all? YouTube users were adamant that their pure ideal of what’s basically a streaming video dump not ever change. These same people must be floored when they learn their precious original content is used to fuel two shows and countless sites that do just that.

Ignoring all of that, a rental system simply doesn’t work anymore without a package deal or greater incentive: Netflix’ recent deal with EPIX—per the L.A. Times to strengthen its Instant offerings with more recent releases—is beneficial to everyone involved. On a purely digital/tv front, Hulu Plus is a multi-platform DVR launch that almost eliminates the need for cable packages, Crunchyroll allows for tiered simulcast Asian animation and dramatic packages; and owning a Playstation 3 is now like posessing a super-media-machine that strings together MUBI, Netflix, Hulu Plus with a giant pulsating orb-wand.

Compared to all of that and YouTube’s big plan is a streaming rental service? That isn’t remotely practical or plausible in a landscape where Apple is desperate to latch onto your viewing habits and never let go.

The ideal choice: YouTube unleashes their own version of Netflix Instant but with 420-1080p quality of newest DVD and even VOD releases under a fixed rate ($25/mo) and allow “rentals" to be a 24-48 hour download to laptops, desktops and mobile devices; end the idea of physical media and adopt a virtual rental system that is as free flowing as Barnes and Noble’s Nook system.

Until then, there’s no reason to bother sweating rentals off YouTube or should anyone remotely consider it a threat. Especially when the best it offers is an ad-choked, low quality stream of High School High.