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Peter Brantley -- At The Millions, Max Magee suggests that the trend in book size is toward the ... physically infinitesimal:

"I've written in the past that books are too big -- not too long, but too bulky and heavy and expensive -- and pined for a return of the pocket paperback, so that carrying a book with you didn't feel like such a chore. A combination of factors led to the demise of the pocket paperbacks that were prevalent in the middle part of the 20th century. These pocket paperbacks had been sold at newsstands and drugstores rather than bookstores, but as these venues stopped selling books, the pocket paperback market shrunk. Around the same time, a wave of consolidation hit the alternative book distribution network that had sprung up around these pocket editions, shrinking the number of books available, and consolidation among publishers folded the purveyors of the pocket editions into larger publishing conglomerates built on a different business model. Finally, the introduction of the trade paperback -- the larger paperbacks prevalent today -- squeezed the pocket edition out of the publishing equation except in a few genres -- romances and mysteries -- that still cling to the similarly-sized mass market format (which you can still see at grocery stores and in airports).

...

"A full-fledged return of pocket paperbacks would be surprising, however, as ultimately it seems likely that an even smaller format will take center stage, a format that is indeed infinitesimal. With hardware innovations driven by
Amazon's Kindle and perhaps Apple and Sony as well, reading on these devices will become more palatable for a larger percentage of readers. Selection of titles will improve and developments like Google's recent deal with publishers will
further expand the availability of titles in digital formats."

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In a world where the upward trend in book prices continued ($35 trade hardcovers, etc.) then I could see a return to smaller pocket paperbacks, even a burst of growth as reading almost becomes new again.

However, we don't live in that world because the ebook is here. As you note it's infinitesimally smaller, theoretically just as portable (although I'm not taking my iPhone in the bath anytime soon) and readers are fast becoming accustomed to reading on their devices. I can actually see the ebook revolution lead to a return to higher-quality publishing & binding (I'm talking the physical book, not its contents) for several reasons:
1. Comparatively cheap ebooks hook readers (potentially more readers/book buyers than we have today)
2. Those readers find authors and individual titles that they connect with and then want a hardcopy for their personal collection. (Anecdotally, I've come across numerous people who "try books out" electronically, and purchase hardcopies of the best.

At this point, why merely trade up to a $14 paperback sure to yellow in 5 years and get spine creases the first time you read it? These readers will want hardcovers.

Following this line of thought, if bringing home a hard copy of a book for your collection moves from the everyday realm to the occasional splurge/investment (emotional, not financial), I can easily see people wanting a beautiful object, and being more willing to invest in a "deluxe" edition or to customize their book.

This could lead to a new demand (still small compared to the overall book market, but larger than today, and sure to grow as the trendspotters publicize the idea) for custom bookbinding. Some of yesterday's execs had scouts purchase large, leather bound libraries of classics just so their home looked suitably intellectual. Tomorrow's may want their books to all be bound alike in fancy leather bindings.

At the low-end, I am currently amazed that there isn't a website where I can create my own dustjacket for my favorite books. Users could choose from a library of fonts, pick from a library of specially licensed artwork, and design a layout to give their books their own personal look. Why stop at a bookplate when you can have your logo printed on the spine of all your book's jackets? Your favorite mystery series or books on WWII history could all share a common style, just like Pepys had his entire library bound the same way in the 17th century.

At worst, I believe POD technology should allow publishers to keep hardcovers around much longer, if not for as long as the book is in print.

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An interesting idea, but one I doubt publishers will adopt, for at least two reasons.
First, many of the costs associated with publishing a book are fixed costs (copyediting, design, marketing, etc.) that remain the same regardless of how big the book is. So making a book half as big won't make it half the price.
Second, many of the readers who choose print over electronic media do so because they (okay, we) don't have 20/20 vision any more, and are unlikely to buy pocket-size books because the type is too damn small.

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True, the eyes seem to age faster than any other body part. Trade papers are definitely the preferred format with our older customers.

Given that the fixed costs should be ideally covered in the initial sales activity of the book (let's say first 2 years: 1 HC, 1 PB, for sake of argument -- though I'm sure many take longer to earn out, if ever) shouldn't that open up the options to exploit the content in different formats later in the title's lifecycle?

Maybe the pricing structure needs to take age of a title into consideration. The ebook could be value priced for one or two months during the pre-publicity phase, once the hardcover is available the prices equalize, the ebook price is dropped to mirror the trade paper price a year later, and at some point after that (year 3, maybe) the ebook drops to <$5.00 depending on market factors.

Although an assumption of the above is that market demand continues to favor physical books. Who knows, if ebooks take off at regular prices, the physical books could end up being sold as cheaper alternatives (no costly device to buy).

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