Video report by ITV News Political Correspondent Libby Wiener.
Culture Secretary Nicky Morgan said broadcasters who "do not remain relevant will find themselves left behind by viewers", but has denied launching an "attack on the BBC."
Speaking in central London, Ms Morgan said "public service broadcasting is too important to allow it to become a historic relic, like Blockbuster", referring to the decline of the video rental franchise.
She said the “pace” of change in the broadcasting industry “is fast and it’s only going to get faster."
Her department has launched a consultation on decriminalising licence fee evasion.
People will be asked for their views on whether criminal sanctions for the non-payment of the licence fee should be replaced by an alternative enforcement scheme.
Baroness Morgan said “the licence fee will remain in place” for the Charter period ending in December 2027.
“However,” she added, “we must all be open minded about the future of the licence fee beyond this point”.
She hit back at suggestions the moves could be seen as an effort to suppress the BBC, which hit controversy during the election.
“I don’t think anyone should interpret today’s announcement or discussion about the licence fee… as any kind of attack on the BBC,” she said, calling it a “cherished British institution”.
It is important to “understand the ways in which the BBC is funded”, she said, and there should be “more transparency about funding”.
Baroness Morgan added: “Anybody who’s been campaigning in recent years standing on doorsteps will know there is more and more talk about, ‘Why do I pay the licence fee, what do I get for it?'”
It was “the Government’s duty to shine a light” on funding issues, she said.
Baroness Morgan also announced a flexible payment scheme for the TV licence, which will allow “vulnerable people, including those over the age of 75” to split the bill into instalments.
From June this year, the current scheme of all over-75s receiving free TV licences will be restricted to those who claim pension credit.
The BBC has previously said it cannot afford to take on the financial burden from the Government.
The move towards allowing flexible payments has been criticised by Age UK’s charity director Caroline Abrahams, who said that the new payment scheme will not necessarily help those who find it difficult to afford a licence.
She said: “If you are a pensioner in the position of struggling to pay an extra £157.50 a year for a licence, being able to spread out your payments will not change the fact that the sum is simply unaffordable on your low fixed income.”
In 2018, more than 121,000 people were convicted and sentenced for licence fee evasion and issued with an average fine of £176.
Last year there were about 26 million active TV licences in the UK, generating an income of £3.69 billion for the BBC.
Baroness Morgan said change in the industry and young people’s viewing habits “should be an eye opener for the BBC."
But a spokeswoman for the broadcaster said: “There is a danger that politicians catastrophise the situation.
“The BBC is the most-used media organisation in the UK. It reaches the most people.
“It’s used for the most time. You wouldn’t think that from some of the things being said today.”
Any move to decriminalise licence fee evasion will not come into effect until April 2022, according to the Department for Digital Culture, Media and Sport.
A spokesman for the BBC said any proposals to decriminalise non-payment of the licence fee should be considered at the time of the settlement.
He added: “A detailed Government-commissioned review found the current system to be the fairest and most effective.
“It did not recommend change – in part because the current system is effective in ensuring payment with very few people ever going to prison.”