A consultation paper on the future of the BBC published by the Government would pave the way to "a much diminished, less popular" service, the broadcaster has warned.
Culture Secretary John Whittingdale said that the upcoming review of the BBC's Royal Charter will look at whether the broadcaster should continue to be "all things to all people" or should have a more "precisely targeted" mission in terms of its output.
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Launching a green paper setting out the terms of the review, Whittingdale said the process would consider both the "mixture and quality" of the programmes broadcast by the BBC as well as the way they are produced.
"With so much more choice in what to consume and how to consume it, we must at least question whether the BBC should try to be all things to all people, to serve everyone across every platform, or if should have a more precisely-targeted mission," Whittingdale told the House of Commons in a statement.
"The upcoming Charter review will look at whether the scale and scope of the BBC is right for the current and future media environment and delivers what audiences are willing to pay for."
He told MPs that a subscription model for paying for the BBC "could well be an option in the longer term, but would not work in the short term".
The review will look at three options for changing funding arrangements for the BBC – a reformed licence fee, a household levy or a "hybrid" funding model. Consideration should be given to the case for a full subscription model in the longer term, he said.
In a statement, the BBC said: "We believe that this green paper would appear to herald a much diminished, less popular, BBC. That would be bad for Britain and would not be the BBC that the public has known and loved for over 90 years.
"It is important that we hear what the public want. It should be for the public to decide whether programmes like Strictly or Bake Off, or stations like Radio 1 or 2, should continue.
"As the director-general said on Tuesday, the BBC is not owned by its staff or by politicians, it is owned by the public. They are our shareholders. They pay the licence fee. Their voice should be heard the loudest."
The BBC said the starting point for the Charter renewal debate should be "how can a strong BBC benefit Britain even more at home and abroad?"
The broadcaster added: "The BBC has embraced change in the past and will continue to do so in the future, and we will set out our own proposals in September."
Whittingdale said that the Government would consider the case for decriminalisation of licence fee evasion as part of the review, but a report published today had concluded that the measure was not appropriate under the current funding arrangements.
The Culture Secretary said that the review would look at three options for reforming the BBC's governance, including reforming the existing BBC Trust, creating a new stand-alone oversight body or moving regulation to Ofcom, each of which he said had "pros and cons".
Trust chairman Rona Fairhead said: "Of course there are also big questions to ask about the future of the BBC, but the debate must not be a narrow one and the clearest voice in it must that of the public. We will carry out our own research and consultation to make sure of that, and we welcome the Government's statement that they will work with us and will take full account of our findings."
Whittingdale confirmed that the BBC will take over responsibility for funding free TV licences for over-75s from 2018/19.
And he told MPs: "We also anticipate that the licence fee will rise in line with the Consumer Prices Index over the next Charter review period – but this is dependent on the BBC keeping pace with efficiency savings elsewhere in the public sector and it is also subject to whatever conclusions are drawn from the Charter review about the BBC's scope and purpose."
Whittingdale told MPs there was no "easy solution" to the problem of funding the BBC. The current £145.50 licence fee was "regressive" because it was charged at the same rate on every household with a TV set, he said.
And he acknowledged that increasing numbers of younger viewers were accessing BBC programming via the internet and the corporation's own iPlayer service, for which no licence fee is required. This was "perfectly legal" but the Government was committed to updating the legislation.
The Charter review will look at whether the BBC's current range of services "best serves licence fee payers" and whether the scale of its output is adversely affecting commercial rivals, said the Culture Secretary.
He cited the BBC's Olympic coverage and "world-beating dramas" like Sherlock and Doctor Who as examples of why the corporation remained "cherished and admired – not only in this country but around the world".
But he said the corporation had grown from two television channels, five national radio stations and a local radio presence 20 years ago to become "the largest public service broadcaster in the world, with nine television channels, five UK-wide radio stations, six radio stations that reach one of the home nations, 40 local radio stations, and a vast online presence," he said.
"There is evidence the BBC helps to drive up standards and boosts investment, but there is also concern that public funding should not undermine commercial business models for TV, radio and online."
Labour's shadow culture secretary Chris Bryant said the corporation should continue to make popular programmes like Strictly Come Dancing, Top Gear and The Voice.
He told Whittingdale: "You say we should consider the matter of the universality of the BBC, but surely the golden thread that runs through the concept of the BBC is that we all pay in and we should all get something out – and that includes my constituents as well as (your) constituents, those who like opera and those who like soap opera."