What a wonderful anecdote! I've also taught journalism at two major universities and wish I could feel sure my students would have done better, but I can't.
I suspect that what happened in your class stems, in part, from college students' simply not reading novels now. If surveys of American reading habits are correct, it's likely that many of them haven't read one for pleasure since the Harry Potter series.
In a weird way, your experience suggests a problem with labels that I hadn't thought to mention: For some people, the issue may not be that the genre tags are too esoteric but that they don't understand even the broadest ones.
That's why I love comments like yours: I learn a lot from them (even if what I learn is disheartening at times). Thank you!