Last time people spread panic about this exact same phrasing was when Dropbox updated it's terms, it's needed to provide their services.
Taken in isolation this could sound scary, but as zalew says here[1] it's needed for them to operate. Seriously, think about what would happen if google suddenly started publishing your (private) content. They'd lose all trust from the wider population. For them to publish or publicly display your content in a way that would violate your privacy would be an absolutely stupid move. Google hasn't gotten to where they are now by being absolutely stupid. [1]http://news.ycombinator.com/item?id=3582421
"When you upload or otherwise submit content to our Services, you give Google (and those we work with) a worldwide license to use, host, store, reproduce, modify, create derivative works (such as those resulting from translations, adaptations or other changes we make so that your content works better with our Services), communicate, publish, publicly perform, publicly display and distribute such content." -- http://www.google.com/intl/en/policies/terms/