Viewers feel that the BBC's schedules are becoming increasingly dominated by so-called "ratings chasers", according to research conducted by the BBC Trust.
Sir Michael said the BBC faced "a complex set of demands"
These include reality TV programmes, makeover shows and soap operas.
It also found so-called "low-approvers" - many of them young - felt the BBC's news output was inaccessible.
Based on this research, the trust has published a series of final remits to help the BBC deliver the six "public purposes" laid down in its Charter.
"The BBC faces a complex set of demands," said Sir Michael Lyons, chairman of the trust.
"It is therefore important for the trust to set clear priorities and realistic expectations."
Viewers believe the BBC should "work harder" to "demonstrate new ideas" in its television programmes, according to Sir Michael.
In a letter to director general Mark Thompson, he said the trust's public consultations had shown viewers felt there was less choice of programmes.
This perception prevailed despite the growth of multi-channel television.
He also said the BBC was "not serving everyone as it should" with its News and Current Affairs output.
The department should reach out to new viewers, said Sir Michael, "without jeopardising the support of existing and loyal audiences".
In addition, there were some "sizeable performance gaps" in how the different nations, regions and communities felt they were represented.