Cisco Systems (NASDAQ:CSCO) is blurring the line between network equipment and server systems. In the process, the company is moving media distributors and consumers one step closer to the "watch it anywhere, anytime, on any device" ideal. But it will take more than a clever network setup to reach that final destination. Entire industries need to change.

What's up?
The latest media processing beast out of Cisco's labs is the MXE 3000, a high-powered transcoding central that aims to take video in any format and deliver it to the end user in basically any other format. The translation between different media formats is supposed to be transparent to the consumer, highly automated and integrated into the network itself, and it's supposed to just work. And oh boy, video distributors need that kind of help today.

For example, I have this fancy Verizon (NYSE:VZ) FiOS service with a "media manager" DVR. It lets me record TV shows on one box (the DVR itself) and watch it on other digital cable boxes around the house. So far, so good -- Verizon controls the video format from the source to my screen, and it works.

Paradise already, right?
But there are limitations in Verizon's system. A recent beta program would let me stream videos from other sources besides the actual DVR box, such as Google's (NASDAQ:GOOG) YouTube and my own video files. And while it was cool to get these clips onto my big-screen plasma TV, the transcoding often failed or left ugly artifacts behind. Besides, Verizon's hardware didn't do any of it. Instead, software installed on my own computer did the heavy lifting. This is clunky and ugly, and while geeks like me can handle the setup, I'll bet that four out of five regular couch potatoes will ask the fifth one for a better manual or a new computer.

With something like Cisco's new hardware installed somewhere in Verizon's data center or service station, all that haggling between video formats could conceivably have been done without any help from my own systems. YouTube clips would be intercepted and properly formatted on their way from Mountain View to my living room. My personal videos would have to be sent out to the service provider for a quick fix, but considering the massive two-way bandwidth in the fiber-optic FiOS system, this should not be a problem.

Extending the reach
Similar services could then be concocted for cell phones (a natural stretch for Verizon, while Comcast (NASDAQ:CMCSA) might feel queasy about this step), portable media players like your Apple (NASDAQ:AAPL) iPod Touch, or anything else with a screen. From there, we'd just have one more step to take before arriving in the Shangri-La paradise of unfettered media distribution: licensing.

The technical side of the equation is nearly complete, though it will take a few years to roll out these media processors or their equivalents across an entertainment-hungry nation. That's okay, and the networks can take their sweet time, because it'll probably take even longer to convince Disney (NYSE:DIS) and its content creator peers that their precious video materials belong on every screen in reach.

All quiet on the Western front
Studios occupy one side of this Maginot line, and consumers the other. In the middle, distributors like the cable networks and rental specialist Netflix (NASDAQ:NFLX) are trying to untangle a complex web of longstanding conventions and contracts between the media giants and their traditional network partners. Somebody will have to prove beyond a shadow of a doubt that piracy-riddled digital distribution can be at least as profitable as tightly controlled broadcast network partnerships. Guys like Cisco are just there to provide the tools to get it all done.

And it will get done. Trust me on this.

Further Foolishness:

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Fool contributor Anders Bylund owns shares in Netflix, Google, and Disney, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.