‘I don’t think even he believes it,” one prominent BBC figure said to me, “I don’t think anybody could. It’s a suicide note.” He was talking about the Royal Television Society lecture given last week by the corporation’s director-general Mark Thompson. The DG outlined a technological revolution in which all BBC content will be online, open access, available 24/7, interactive, downloadable, portable, podcastable, bloggable and probably playable on your fridge. He spoke of a machine called a BBC i-player and of how, five years from now, we shall “drag-and-drop” television and radio stations.

It will be part of an extra £5.5 billion spening over the next 10 years and, to fund it, the BBC wants the licence fee raised, year by year, from its present level of £131.50 to more than £180 by 2013. Tessa Jowell, the culture secretary, has signalled that this is seen as no more than “an opening bid”. But the BBC has already sweet-talked her into giving away an even bigger prize. She has guaranteed the licence fee itself will continue for the next 10 years.

“They played her beautifully, like a trout,” said one embittered ITV executive. One crucial tactic was the massive coverage of the Queen’s golden jubilee. It was a television event that succeeded, according to former DG Greg Dyke, in saving two British institutions — the monarchy and the BBC.

But why did my BBC friend think Thompson’s lecture was a suicide note? Because, in the future he described, there was no place for broadcasting — disseminating material to everybody at once — only narrowcasting — sent to individuals who can choose to see, hear, or read it whenever they want.

But this is the British Broadcasting Corporation. “If the platform is not to be linear scheduling,” said my friend, “then what is the point of being a broadcaster? This just turns the BBC into a publisher.”

This is not just wordplay. It is a crucial transformation that has convinced many that the BBC has no longer a right to exist on anything like its present scale. There are already dozens of highly successful and highly competent players in the narrowcasting market on the web.

Blogging is just the beginning. Home-made content — as Thompson acknowledges — is going to become ubiquitous and popular, lots of little narrowcasts soon turn into a very big share of the public’s screen time. So, as far as the BBC is concerned, what’s the point? There is much quite plausible arm-waving in Thompson’s lecture about this. But there can only be one argument for the licence fee and it’s always the same, whatever gizmos are on offer. That argument is “market failure”.

In a fully open, free and competitive broadcasting market, certain types of programme would not get made. So, just as we subsidise the Royal Shakespeare Company to keep Shakespeare on the stage, we subsidise the BBC to raise television output above the standards of the market swamp. The problem is, we don’t subsidise the RSC to be the biggest player in the theatrical business. But that is exactly what we do with the BBC. Its dominance of British broadcasting is absolute.

Or to put it another way: why does public money go into backing the dismal national lottery show or any number of programmes that could equally well be made in the commercial sector? Strictly speaking, the market-failure argument would only justify, say, one television channel, one radio station and, maybe now, the website. How, therefore, can it justify this multi-billion pound gorilla in the relatively small room of the British media?

A second leg of the market- failure argument is required. Here it is. The BBC’s mission is not just to protect certain types of programme — Planet Earth, Bleak House — it is to raise the standards of programmes as a whole. If there are to be television makeover, quiz or comedy shows, then they should be the best. By example, the BBC lifts the whole of British television out of the swamp.

This leg of the argument was effectively bought by Jowell when her white paper on the BBC said “being entertained should be of fundamental importance” and she encouraged the corporation to “take the business of fun seriously”. These words are not just mood music, they are metaphysics. Jowell had bought into the faith that everybody is made better by a big BBC.

In his lecture, Thompson reinforced the metaphysic with the results of Creative Future, “the largest and most detailed audience research project we’ve ever undertaken”. This revealed both “an audience which continues to judge the BBC by very high standards” and a shift in audience expectations. “They are clearer than ever before that they want to be entertained by the BBC, not just alongside being informed and educated, but in almost everything the BBC does,” he said.

The public, in other words, had also bought into the second leg of the market-failure argument. Why shouldn’t they? Everybody wants to be entertained and, if the licence fee gives us Planet Earth, Bleak House, Doctor Who and Only Fools and Horses, then long live the licence fee.