Small phones were popular when all they could do was make calls and even texting was sort of cumbersome and rare. Of course you'd want that sort of single use device to be as small as possible.
I fail to see how YouTube, Fornite, and Instagram users (to name a few) will want a smaller screen.
I also think the market has settled on rather standard phone body sizes that have not changed significantly since 2014 or so.
I can't comment on what those users want; I don't use any of those things on my phone. I'm not claiming that large phones will cease to exist; I'm guessing that there will be a new trend promoting smaller phones. Some folks will jump on the bandwagon, some will stick with their phablets. Apple in particular will probably make a big marketing push that tries to portray small phones as some kind of cutting-edge innovation.
As another example, Nintendo completely discontinued the non-XL 3DS models in the USA.
I think you aren’t wrong, there are enough people somewhere to buy a small screen smartphone, but apparently that number is small enough to not even open up a single assembly line for.
But those who like content consumption (probably most people) will still be walking around with a rectangle in 10 years, if I had to guess.
Just my own speculation.
It depends on how one plans to use it. I personally don't want to carry one device for reading, one for watching videos in addition to a phone. (It's very unweildy, I have done that for some time so I know)
Large screen phone for me is a catch all device. When commuting, I can catch up on Netflix or read books comfortably on iPhone 8+
Landscape orientation and continusous scrolling in Kindle or Apple Books works pretty good. The screen is just about right size for watching video content as well without much strain.
I say this as I invariably carry a laptop as I do get uncontrollable urges to write code at any random time of the day. If that happens while I am commuting and lucky enough to have a seat, I have my personal Thinkpad (or a work MacBook) to that end.
Have been trying Pythonista+WorkingCopy recently, seems OK on an iPad, hopefully if I get in the flow of using it on iPhone 8+... happy days. Maybe I will consider getting Xs Max (cost and lack of physical home button are keeping me away from it for now)