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From what all I've read Sony is basically setting themselves up as an online distributor. The company which you pay the cash to to format your book is taking the place as the typesetter/printer.
That positioning has a lot of bonuses for Sony. Primarily they are themselves not at fault for any formatting problems in the book but can go back to another company to get things fixed. They are also not in the typical role of a publisher, in that they do not/are not providing proofreading and editing services. It also benefits them because they are not setting themselves up in direct competition with their current largest customers, primarily publishing houses. I wouldn't be suprised to find that large publishing houses are allowed to do their own in house formating of the ebooks. As these companies would have incentives to do it correctly, that independent authors and small vanity type publishers would not necessarily have.
Plus setting themselves up as a distribution point, but not themselves taking the charge of properly formatting the books means that Sony currently has a very low overhead to distribute. They only have to provide the bandwidth, the server space, and process the credit card transactions. All of these are things that sony already provides, for other services. Such things as Sony Style, and Everquest, Final Fantasy, etc.
Providing this service to independent authors or authors that would use a vanity press to publish on paper, only makes sense. It also only makes sense to force these independents to go through a specificed firm to format their books. Not only does Sony then have a single point that they can go back to if their are formatting issues in the ebook that customers are complaining about, but it also sets an entry point that some independent authors may not be willing to cross because of the percieved quality of their work.
Jeb
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