Her comments follow criticism from BBC director-general Matt Brittin, who told MPs that the licence fee model is “no longer fit for purpose” and described it as a “busted flush.”
The broadcaster relies primarily on the licence fee, which rose earlier this year to £180 annually, as its main source of income for TV, radio, and online services.
Ms Nandy said: “I do actually and I’ve thought (so) for a long time.
“The licence fee in its current form is unsustainable simply because there are fewer and fewer people paying it.”
She pointed to growing competition from streaming services such as Netflix and Disney Plus as part of the challenge.
“The only option that we’ve ruled out completely is funding the BBC through general taxation because of the risk of political interference.
“But I think he is right to be very stark that we’re going to have to make some different choices.”
The BBC has previously suggested that the licence fee could be reduced if more people paid it. Currently, 94 per cent of adults use BBC services each month, but only around 80 per cent of households contribute to its funding.
The debate over the future of the licence fee comes as the BBC’s Royal Charter, which underpins its governance and guarantees editorial independence, is due to expire in December 2027.
Ms Nandy also commented on the possibility of a compulsory household levy, saying there are “different ways of doing a household levy” but stressing that no decision has been made.
She said the Government is consulting with the BBC and will also seek public input as part of the charter review process.
Ms Nandy said: “We’re determined to get this right.
“What is not negotiable is that we will fund the BBC properly.
“That is a commitment that we have made.
“What is up for negotiation is how we do that, because it has to be sustainable and it has to command public support.”
The future of BBC funding is expected to form part of a wider public consultation as the Government prepares to review the Royal Charter.