Ratings tanked? erm no they didn't.
WWF TV Average Rating (RAW - May-Apr Fiscal Year):
1994 - 1.99
1995 - 1.97 (3.0)
1996 - 1.78 (3.0)
1997 - 1.80 (2.4)
The Monday Night War which didn't come into effect until the tail end of Diesel's reign as WWF Champion, changed the way the business was operated & generated revenue. Prior to the debut of Nitro, WWF had historically rarely worried that much about ratings. The business model was all about house show attendance, PPV buys & merchandise sales - television was just the vehicle to drive those revenue streams. Raw mostly consisted of stars beating non-stars. During his entire reign, Diesel wrestled five times on Raw. Back then, in addition to highlighting their big names, TV time was used to advertise local house shows & the major PPVs. The best way to see WWF Champion Diesel perform was to go to the non-televised match at the arena when they came to town.
WCW made Nitro the focal point of the company, and not the house shows or PPV. Nitro was based on stars vs. stars. Dream matches of the era, like Hulk Hogan vs. Sting or Hogan vs. Lex Luger, that would usually be saved for PPV, were instead made Nitro main events . Nitro held its own with Raw from the start. The combination of expanding to two hours and the introduction of the Kevin Nash & Scott Hall, led to WCW dominating the ratings each & every Monday & eventually, WWF had to respond.
Also 1995 may be regarded as the worst year in history but in reality it wasn't.
WWF Prospectus filed in Oct 1999 with SEC: http://www.sec.gov/Archives/edgar/data/1091907/000095013099005812/0000950130-99-005812.txt
*May-Apr Fiscal Year - WWF Net Income (Profit/Loss):
1994-95 - $87,352,000 (-$4,431,000)
1995-96 - $85,815,000 ($3,319,000)
1996-97 - $81,863,000 (-$6,505,000)
Hart was WWF Champ from May 1, 1994 - Nov 23, 1994 & WWF made a loss of $4.43 million.
Diesel was WWF Champ from May 1, 1995 - Nov 19, 1995 & WWF made a profit of $3.19 million.
HBK was WWF Champ from May 1, 1996 - Nov 17, 1996 & WWF made a loss of $6.50 million.
The only period WWF turned a profit in the mid 1990's was during the 1995-96 fiscal year of which Diesel was WWF Champ for 6 months & 18 days.