Half a million households cancelled their licence fee last year as the BBC struggled to connect with younger audiences drifting away to Netflix and YouTube.

The stark extent of the BBC’s challenges are set out in the corporation’s annual report, which shows the total number of British households paying the £169.50 licence fee fell to 23.9 million, suggesting a growing number of people feel able to go without BBC services.

The fall has hit the BBC’s income at a time when its finances were already struggling owing to a decade of funding cuts and high inflation.

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Some of the most worrying numbers for the BBC show how young people increasingly feel the broadcaster is not relevant to them. Just 69% of Britons aged under 16 said they consumed any BBC content in an average week, with rates being weaker among people from an ethnic minority background.

The figures are lower for younger age groups, with children under seven in particular tuned out. The BBC says it is struggling to compete against “global media companies” for these crucial future viewers.

The corporation has until the end of 2027 to reach a new funding deal with the government. The prime minister, Keir Starmer, and the new culture secretary, Lisa Nandy, have expressed broad support for public funding of the BBC, unlike the previous government which vowed to abolish the licence fee.