An iTunes library issue that needs the brightest of minds..

I've searched through all of the threads pertaining to this issue and i've yet to find a solid, good answer. Basically, I have a macbook pro retina machine with 250 GB. I have over 100 movies purchased in iTunes as well as multiple TV shows that if I were to attempt to download onto my local disk the shear size would make my HDD .
I have a 1TB external drive and am just wanting to make hard copies of all of my videos and music on my external. Is there a specific way to use my external disk to not only backup my computer via time machine, but to also use it to backup all of my videos and music. I don't mind watching all of my content via the iCloud but I'm having difficulties creating a library on my external and then using that to download all of my movies. As I can't download all of them on my local disk and then transfer a copy, I need to figure out a way to set up my library on the external disk and then download everything to the external. Do you guys know of any way to do this?
Just to clarify my questions to you powers at be:
1. I need to set up a library on my external drive that I can download all of my media to.
2. I want to still be able to use itunes on my macbook and just watch all of my media/music on the icloud
3. Can I still use the same drive that has all of my backed up media as a backup through time machine as well?
I've scoured all of the forums and really all I could find was how to set up libraries on an external disk. None of them ever mention whether or not I can basically use my itunes library locally however I want, knowing that everything I've ever bought is backed up on my external. Any help would be amazing. I appreciate it guys!

Quick answer if you use iTunes' default preferences settings:  Copy the entire iTunes folder (and in doing so all its subfolders and files) intact to the other drive.  Open iTunes and immediately hold down the option (alt) key (shift on Windows) so you get a prompt to select a library, then guide it to the 'iTunes Library.itl' file in the moved iTunes folder.
Yes, that's probably what you've seen before but it is how you put your library on an external drive and use it from there.
Note, having your iTunes library on the external drive and having that as your backup drive means you don't really have a true backup.  You do for minor issues but one of the most common reasons the have a backup is if a drive is stolen or fails.  In yur case if your external is stolen both your original and backup will be gone.  You really need a second external drive.

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