Before reading, please bear in mind that this is the opinion of a viewer, not a broadcaster
Although seemingly balanced in your argument, you're fundamentally biased in your views. Coming from a production environemnt fully funded by the tax payer (and even the commercial terrestrial channels recieve some form of funding in the UK), you appear to play down the power of market economics.
Public access, at least on the scale of that seen in the States, does not exist in the UK. Morever, programming in the UK is largely dominated by a handful of broadcasters and production companies. Although the advent of digital satetlite and terrestrial tv has expanded choice, I believe this no to be at the detriment of quality. Inded, the diversification of channels benefits the end user by increasing choice. How many times did your significant other complain of "nothing but sport on TV", or perhaps not all of us want to be force fed Eastenders, Coronation Street or Emerdale at 7-8pm?
So rather than a centralised system where viewing habits are dicated, we're moving towards a more autonmous hierachy where viewer choice is paramount. By specialising in certain subject areas, the quality of programming could concievably increase; specialisation leads to improved skills. Morever, this specialisation enables greater targeting in advertising - and demographics are something advertisers see as key. Reduce advertising revenue per capita? Perhaps, but advertising becomes more effective and may increase returns, inturn attracting more players to the table.
In addition, this seperation of target audience may well reduce per capita fees for advertising in certain, less desirable areas, but this would also attract a whole new level of advertiser. At present, advertising on network tevelevison is outside of the budget of most small to medium enterprises. The deregulation of the TV industry enables these SMEs to come to the TV advertising table thereby increasing the total money spent on advertising.
I've strayed from the original post somewhat, but I believe the marginilisation you're feeling is the inevitable consquence of change. In the UK we are at a transitional point, where the end case scenario could well be programming completely in the hands of the individual. Showshifting is a step towards this, and ultimately the power is turning away from the programmers and into the hands of the audience. Audience power has been growing for some time and set to continue.
Broadcasters must adapt or die. Innovation is key and although you talk of a declining in standards, I would argue the opposite.