Speaking at the Edinburgh International Television Festival at the weekend, Dyke said UK broadcasting would be better off if ITV could become the industry's "third gorilla", alongside the BBC and BSkyB.
Dyke said that only by securing a strong ITV as an advertiser-funded, free-to-air television group -- alongside the BBC and Sky -- could a healthy broadcasting market with a proper balance of power and influence be maintained.
As part of this process, he said the merger of Carlton Communications and Granada should be allowed to proceed under reasonable terms and for further consolidation within advertiser-funded broadcasting.
Without change, Dyke stated that the future would be bleak for viewers and programme makers alike.
He dismissed claims by ITV executives that its relative collapse was due to the BBC, and urged that ITV should look closer to home for its recent failures.
He blamed ITV's weak position on a series of bad decisions by ITV management, including investing in the collapsed digital service ITV Digital and ITV Sport, its failed digital channel.
Dyke also said that ITV had been hit by the money ill-spent on sports rights, bad programming decisions, including moving the 'News at Ten' and losing 'Home and Away' to Five, as well as upsetting traditional advertisers by taking money from dotcoms.
The BBC ended up replacing the £1.1bn disaster ITV Digital with its Freeview service, which has been a great success.
He insisted the future of ITV could only be secured if government and regulators made it commercially attractive for ITV to remain a public service broadcaster.
"If governments and regulators want to preserve some of the best features of commercial broadcasting in this country they will have to change their approach," he said.
"They will have to make it commercially attractive for ITV to remain a public service broadcaster.
"The days of doing it by decree are rapidly coming to an end and the days of charging ITV hundreds of millions of pounds for the privilege of being a broadcaster are certainly numbered."
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