I've always been curious as to this

Interesting

I was a teenager and ADORED the show. I don't recall much conversation about it - whatever they did, they did. It wasn't like today where everything is dissected and munched over.

Fun Fact. The first Usenet Newsgroup that I joined in late 1994, was rec.arts.tv.happy days. my nick at the time was Fonzie666.

There was no backlash against it. HD was still in it's prime by then. I never heard the term JTS until this century.

I had gone to college that year, so was pretty oblivious to what was going on on TV. The show changed radically in Season 3, with the change to the live audience. I look through the episodes and see a lot of funny ones. I remember watching the Season 4 Pinky Tuscadero opener and going "What the heck is this?" There's a lot of Season 4 episodes whose descriptions I don't recognize at all, so I checked out on the show sometime during that season. I think the shark-jumping Season 5 opener may have been when a lot of the show's early fans finally gave up - that quiet, funny show was dead and gone.

As to reaction, there was no Internet. Cable barely existed. Entertainment Tonight hadn't started. "Reaction" would be what TV critics said in the local paper, and maybe some jokes by Johnny Carson or something. I think today people search through databases, find some articles about shows, and assume that everybody was buzzing about those same things. It really didn't happen. Most TV talk was about whether you liked something that was on last night, and you very seldom discussed what it meant for the medium or society as a whole.
The one show I do remember and I was in elementary school at the time was when Fonzie jumped over those garbage cans. The whole school was talking about it.

There was most likely no discernible public reaction to the "jump the shark" moment of Happy Days
when said event occurred during the third part of their "Hollywood" episode which began
the 5th season of the series. ( The historic three-part episode was telecast in September 1977. )

No viewers watching then could have known or even understood the everlasting pop culture significance
of the Fonz "jumping the shark" at the time when it actually took place on the show in 1977.

But if the "jump the shark" moment was meant to be interpreted as signifying the decline of Happy Days,
the program nevertheless continued to survive through seven more seasons afterwards and still managed
to evolve permanently into a much beloved iconic TV series.

In truth, THE REAL CRISIS POINT OF HAPPY DAYS was never the moment when Fonzie jumped the shark in season 5
- it was ultimately the decisions of Richie and Ralph to enlist in the army sometime during season 7.

During the early years, the show's formula of ratings success was
THE QUARTET : the gang of Richie, Potsie, Ralph and The Fonz.
When Ron Howard and Donny Most left the show,
this original formula of success was destroyed forever.
Henry Winkler lost his best acting partner in Ron Howard.
Anson Williams lost his best acting partner in Donny Most.

Happy Days ought to have been facing cancellation shortly after the quartet disbanded.
But they continued to thrive. Why?? Because during the later years, the show's
newly-discovered formula of ratings success became THE LOVE TEAM : Joanie loves Chachi.
( together with help from romance mentor Fonzie as well as supportive parents Mr. and Mrs. C. )

That secondary formula of ratings success was never meant to be "spun-off"
as a different, separate and independent TV program away from the original series.
Joanie and Chachi should have permanently remained and been further strengthened
as the new central focus and foundation of their main show.

Without the burden of a failed spin-off, Happy Days might have continued until season 15.

However, God must truly love the series Happy Days.
Right before the Fonz "jumps the shark" in part 3 of the "Hollywood" episode,
his young cousin Chachi Arcola gets first introduced in part 1 of the "Hollywood" episode.
A fortuitous coincidence ? Or divine intervention ?? We can only guess at this point.
It does appear that God seems to have injected the necessary antibiotics ( Scott Baio )
to cure the patient ( Happy Days ) just when the symptoms of the disease ( shark jumping )
began manifesting itself at the start of the fifth season.

( The angelic conversation in heaven may have occurred this way :
"What ? Fonzie will be jumping the shark at the end of the Hollywood episode??
My favorite TV show Happy Days is in danger of being immediately cancelled ???
Well, then, RELEASE THE CHACHI !!!" )