NEW YORK (TheStreet) -- Utopia was anything but for 21st Century Fox (FOXA) and its Fox network.

Not only was the much-ballyhooed $50 million reality TV "game-changer" a disaster both in ratings and finances, it may also be viewed by future generations as the defining moment in the death of an entire genre: reality TV. For viewers young and old, reality is out while storytelling is in.

Must Read: 10 Stocks Billionaire John Paulson Loves in 2014

Fox scrambled over the fall to find a time slot where Utopia might gradually grow an audience, shifting the show to Friday, a less competitive evening, from Tuesday. But it's final episode generated a paltry 1.6 million viewers, or a 0.7 rating among adults 18 to 49.

With content like Utopia, it's no wonder that Fox is ranked fourth -- or last -- among the major U.S. television networks. Operating income at Fox's television unit fell to $174 million for the three months ended Sept. 30, compared to $231 million from the same period a year earlier. Fox owed the decline to higher programming costs related to its National Football League coverage and also to higher programming cancellation costs.

Lousy ratings at the Fox network, though, were the main culprit, compounding the overarching problem of an industry-wide decline in advertising. Cowen research analyst Doug Creutz said last week that compared to other ad verticals, "national TV advertising has been roughly flat for the last two years, with growth significantly slowing, and with its share of overall advertising in decline."

The first Utopia telecast following a heavy marketing effort and ratings giant Sunday Night Football on Sept. 7, drew a mediocre 2.0 Nielsen rating and 4.6 million viewers. The second episode on Sept. 9, drew a 0.9 share and 2.4 million viewers and it only got worse.

The show that never rose continued to fall with a 0.7 rating on its final Friday night on the schedule with a 0.7 rating and 1.5 million viewers going against a rerun of mid-level ranked sitcom Last Man Standing that drew 4.5 million viewers.

Reliance on advertising, affiliate and subscription fees for 70% of 21st Century Fox's total business means it must produce and distribute popular content to keep going in the right direction. 

What does Fox need to do to get back in the TV ratings game?

The first step it took was to combine the broadcast unit and TV studio under one management team. The Murdochs tapped Gary Newman and Dana Walden, who headed up the 20th Century Fox studio since 1999, as new Fox Television Group chairmen-CEOs. David Madden was promoted to entertainment president. They report to Peter Rice, Fox Networks Group chairman.

The hope is this unusual arrangement combining programming and production will create content more attuned to what the public, especially the 18-to-48 demographic, wants to see. Without all the notes and script suggestions from multiple departments, Fox leadership wants to streamline and simplify the process of picking hits.

Creative and programming teams working together may be able to fine-tune earnings potential by keeping a show with lower ratings on the air if it presents a financial win for the studio through leveraging syndication opportunities by selling reruns to cable networks and TV stations.

Another change that may rescue Fox TV will be more of a willingness to go beyond its own studio and work with other production companies.

Fox has holdings throughout the entertainment spectrum from creation, distribution, syndication and ordering, to retail. It has contracts with IMAX. Contracts with the NFL and MLB gives it a great cable sports stronghold that is one of the best revenue streams on television.

Combining more relevant "storytelling" content with the other Fox holdings and projects represents the network's next best opportunity to improve ratings, earnings and profitability, according to industry analysts.

Third-quarter network television ratings declined 4% for the three-month period ended Sept. 30. This followed second-quarter ad declines of 1%. While TV ads revenue drops, Internet display ads were projected by Forrester Research to increase from nearly $20 billion in 2014 to around $37.6 billion in 2019.

Even with abysmal TV advertising revenue, 21st Century Fox continues to be a buy for most stock analysts, as Rupert Murdoch's parent media company continues to explore the future beyond the failing reality TV model and traditional cable TV bundles that are "fraying at the edge," according to 21st Century Fox Chief Operating Officer Chase Carey.

"In terms of digital, we are looking everywhere," Carey said earlier this year, as 21st Century Fox beat analyst first-quarter sales and profit prognostications. New digital platforms represent "the most exciting and important opportunity for future growth," he said.

Must Read: 17 New Hollywood Movies You Will Want to See Over the Holidays

Fox stock hit a new 52-week high of $38.08 on Monday, Dec. 8, before dropping to $36.90 at week's end. Goldman Sachs rated it a buy with a $43 price target. Sterne Agee, in a separate research note, also recommended price targets of $40 to $43 for the stock. Zacks posted a neutral rating with a $37 price target. 

In all, four equities research analysts gave it a hold rating while 12 issued a buy and one issued a strong buy last week, with an average price target of $40.50.

Speaking at the 42nd annual Global Media and Communications Conference at New York, 21st Century Co-Chief James Murdoch admitted sagging ratings for Fox's aging reality franchises like American Idol were problematic. 

The solution is thinking outside of the box -- the TV box that is -- distributing Fox channels "over the top" via the Internet while continuing to look for ways to create new types of programming that could be successful on traditional cable and satellite distribution channels, Murdoch said. "I don't think we have to choose between the two," he added.

That concept, actually, was the key to Utopia's game-changing hype from John de Mol and his Endemol production company. The costliest reality TV show ever, a kind of reality-TV Heaven's Gate, it was supposed to air two or three times a week for a year.

Full online, mobile and social media synergy was supposed to allow producers to scale revenue upward from subscriptions, exclusive content and offers and digital revenue platforms.

But Utopia fell far, far short.

Fox leadership needs to adapt now, as reality TV programming falls by the wayside as diversification through new digital and out-of-the box options becomes the holy grail to continued profitability and new distribution channels.

21st Century Fox and Fox TV seem to have no choice but to make big changes.

Must Read: Here's One Advertising Technology Company in No Rush to Go Public

TheStreet Ratings team rates TWENTY-FIRST CENTURY FOX INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate TWENTY-FIRST CENTURY FOX INC (FOXA) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year, attractive valuation levels, good cash flow from operations and growth in earnings per share. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

You can view the full analysis from the report here: FOXA Ratings Report

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage. At the time of publication, the author held no positions in any of the stocks mentioned.

If you liked this article you might like

Jim Cramer: Why You Can't Write Off FANG

Jim Cramer: Why You Can't Write Off FANG

Why I'm Watching AT&T, Time-Warner, Facebook and Oracle: Market Recon

Why I'm Watching AT&T, Time-Warner, Facebook and Oracle: Market Recon

Time to Sell Netflix and Buy Disney Stock Instead?

Time to Sell Netflix and Buy Disney Stock Instead?

Investors Remain on Edge; FanDuel May Be Prepping for Backdoor IPO -- ICYMI

Investors Remain on Edge; FanDuel May Be Prepping for Backdoor IPO -- ICYMI

Activists Push for Gender Diversity at Amazon

Activists Push for Gender Diversity at Amazon