FWIW: POD these days encompasses a lot of different quality levels and volumes. It is quite possible for a small or even self publisher to order up both small and large batches of books from the very same printers that the BPHs outsource hardcovers to. Quality? Indistinguishable. And both Ingram and Baker&Taylor accept indie titles for distribution to bookstores big and small as long as the retail margin is broad enough. Some indies even order up small batches of premium leatherbound numbered collectors editions for their True Fans. The margins are lower than ebook editions but the more popular indies are reoorting it is worth their while.
Other publisher functions?
Professional editors, line, story, and development are all available for freelance work. Some are moonlighting via internet, some were laid off by the corporate publishers and found a higher income stream freelancing. Authors talk and word gets around of which edutors are good for what genre.
Formatting? Ditto. Also, some business will sell custom formatting templates for one time fees so an authors books (both e-and p-) can present a uniform, professional "house look". Or "series look".
Over the last four years an entire new publishing industry has emerged and is growing under the shadow of the corporate giants. It is sustained primarily by ebook sales but it is not limited to it as pbooks and audio books are part of the revenue stream. Some license out foreign rights or commission their own translations. This isn't a matter of one or two exceptions. Hundreds and thousands of authors are doing it.
Publishing is simply returning to its roots as a cottage industry, of small family or partnership owned small business, the way it was before the giant multinationals started squeezing them and buying them up. Those hundreds of imprints each BPH stamps on the books? Each was once a standalone business that was bought out, often under threat of bankruptcy. The biggest wave of BPH imprint accretion was in the 80's so there are survivors of that age still active out there.
It's early in the game so many of the new publishers are still ramping up but many are already at the stage where they have hired full time support staff and are moving beyond the output of the owner/founders. Some are coop ventures from three or four authors who combined produce enough material to require full time support.
The plain fact is that the only unique service the BPHs offer midlist and newcomer authors is financing. The highly-touted "advance against royalties" that for most of their authors is all their stories bring them. Strip away all the services the author can obtain elsewhere and all that remains is really a venture capital operation, to be polite. Or a loansharking ring if you're not. I've seen the case for both interpretations.
The BPHs exist because they could more efficiently print and distribute dead tree pulp books into many locations and channels and could control the market through sheer volume of output. But over the past two decades their beancounter focus on efficiency and margins and contract negotiations has created an environment where they no longer control the distribution channel (rather the channels control them) and with the new technology and B2B services industries they have become at best a convenience to business savvy authors.
Take a look at the AUTHOR EARNINGS website. Never mind the numbers; look at the categories. There is a sliver for uncategorized single author publusher and another bigger one for small and medium presses. Many of those businesses are actually one and two author operations set up as corporations because they intend to become tomorrow's BALENTINEs, DOUBLEDAYs, and LITTLE, BROWN.
The Empire(s) has been in control for a generation but now the Jedi are back to lead the rebels.
It's really a whole new ballgame.
The old rules and assumptions no longer apply.