The audience is scared, of course, by the horrific ending of the story. And empathy for the narrator only adds to the horror. Thus, given that both the audience and character are scared, as opposed to just one or the other, this falls into a category that can only be called "perfect horror".

Where's the horror? It's all right there in the text. You'll note that the narrator feels "terror and fear", as well as "shock". He starts stammering, indicating even further that he's unpleasantly stunned by his discovery. He even throws the book on the floor, which no one would do if they weren't feeling strong negative emotions they couldn't control. These are all elements pointing towards the horror being experienced. You'll often find the same emotions in Stephen King, etc.

Of course no one would instantly jump to the conclusion that the book had changed. One expects the book to remain the same book it was before. What I've done is a writer's tool known as "subverting expectations", as the fact that the book had changed to something else is quite a shock and inevitably sends chills down one's spine.

Does it really have to be spelled out? It's heavily implied

Sorry, not sure I follow? It’s a horror story

"What is this? What?" I said in shock, turning the pages in the bookstore. But why did I say it? And turning the pages of what? None other than the book written by my significant other, or my wife as I call her. Hardly the occasion for shock and surprise, you'd think. Surely I'd read the book before it was published. And I had. When she got her book deal and handed me a copy of the manuscript, I'd read every word, beaming with pride, even if I didn't actually enjoy the writing, though I might have. And that was that, or so I thought. "The book is getting published, and off it goes to the shelves, and that's it. Same book I just read", I said to myself. But one day in a bookstore, a strange thought occurred to me. An odd notion, almost as if it was beamed into my brain by some incredibly advanced alien species, far beyond the cosmos, their machinations totally unknown to us. "Why not buy the book?" I thought. "What if I, just out of nowhere, right here in this bookstore, buy my wife's own book?" I picked it up and paid the price. But I paid the price in more than one way. While flipping through the book, I felt shock. I felt terror and fear. "Wh-what is this?" I stammered as I threw the book to the floor. It was completely different. The entire book had changed.

"Ah! I've found a clue!" I said, looking at the fingerprint through my magnifying glass. Yes, it is I, the famous detective you know so well. But how could you know me so well when we've never met? That is, never met in real life? An interesting question, and perhaps a sign of things to come? Only a great detective would know, and that's what I am. Not all detectives know that mysteries can actually conceal greater mysteries, as I learned one fateful day, when everything changed. You see, I was investigating the murder of a certain victim. Just an ordinary day in my life, if you can even call it a life at all, which is not something I would have said before this mystery, but soon all will be revealed. I was going through the list of suspects and trying to piece together the clues. But it was all too perfect. Too contrived. I had an odd thought... but no. That's absurd. But could it be? Could real life, to which I thought I belonged, truly operate in such a matter? As if it were penned for me, plotted by the hand of a master? As if I were in.... a book? The thought struck me like lightning. And further deduction proved it was true. I was a character in a book!

The men sat down on the flight. They were handsome, these two men, in a bland way. A way that a certain type of woman would like... a certain type of TV-watching woman. But is that irrelevant, or a sign of strange things to come? No matter. They yawned tiredly. It was, after all, a red eye flight. Normally the men would fly at a more reasonable time. But this was no reasonable night. It was Christmas Eve, but there would be no jingle bells tonight as both men had suffered a Christmas tragedy. The same tragedy. Marriage is for life, they had thought, but in truth that's not so for all, or in fact at times marriage never even begins, as it was not their wives they had been dumped by, but their fiancees. Could what was once so sweet turn so sour? Yes, so it could, and did. But is fate so cruel? Perhaps a hand stronger than fate was guiding these men. Yes, it was so odd, so perfect in a way, that it could only have come from the hand of a TV writer. A Hallmark TV writer? The very same. Yes, these men were not real men at all. They were characters. Characters in Hallmark films.