The Government will consider in six years whether the BBC should be funded by advertising or subscription.
Tessa Jowell, the culture secretary, announced in a White Paper that a review would take place at the end of the digital switchover in 2012, with changes taking effect from 2016.
Ministers believe privately the licence fee will be difficult to justify after 2016 and that subscription will be the most likely way forward for the BBC in a fragmented market.
The White Paper said: "It will be our policy to review the scope for alternative funding mechanisms after the end of the next Charter in 2016, on the clear understanding that the BBC will continue to be funded by the licence fee for the next ten years."
It recalled that an inquiry by the former Treasury mandarin Lord Burns concluded technology meant there might be a need to consider "other forms of funding for the BBC".
The Advertising Association welcomed a key change in the White Paper under which Ofcom will conduct market assessments about new BBC services and changes to existing ones. Final decisions will rest with the BBC Trust, the successor to the Board of Governors.
Attention now turns to the BBC's demand for the licence fee to rise by 2.3 per cent on top of inflation over the next ten years. The IPA and ISBA have warned the Government that an "over-funded" BBC could "seriously damage the commercial media sector on which we depend to deliver the ad messages so important to the continued health (and growth) of British business".
Comment, page 36.