Melodifestivalen in Sweden often gets HIGHER viewing figures than Eurovision. Swedes aren't as fussed about Eurovision as people think. They just love Melodifestivalen!
Melodifestivalen is the biggest show in Sweden, except when they have a Royal Wedding. It's also a national tradition that has been running pretty much for as long as the Eurovision has. They had MF in the 60s. Sure, it got a reboot in 2002, but it's been pretty much the same for the last 13 years.
It's not a reality show - labels push artists to enter (even when they don't want to) as it guarantees record sales in Sweden. It pushes their domestic music industry (though it has a very distinct 'flavour' and doesn't encompass quite a lot of popular Swedish music, though even credible acts will appear alongside Schlager-legends)
However SVT doesn't really have any other major entertainment brands that overlap in winter/spring - all of the big shows - Talang (aka Sweden's Got Talent), Let's Dance (aka Strictly), X Factor, Idol (aka Swedish Pop Idol) and The Voice are all on commercial channels (mainly TV4). Therefore SVT really need a decent multi week entertainment format. Melodifestivalen ticks that box (with Allsång på Skansen hitting it in the summer, competing with Sommarkrysset and Lotta på Liseberg)
Melodifestivalen exists almost distinct from the ESC. A bit like San Remo.
The issue is that with Strictly and The Voice, the BBC really don't need a new entertainment format at the moment. They don't have the schedule slots for it. And a BBC One commissioner is unlikely to commission a Eurovision selection series, heck they stopped commissioning the one-off. The BBC Eurovision production team can't force BBC One to commission a show. If the controller and commissioner doesn't want it, it doesn't happen.
When the BBC did try it they had to kind of fix the result, with Jade Ewen parachuted in at the end of the process in the Lloyd Webber format (only used because he didn't have a show to cast and the BBC had committed to a show)
The UK is in a catch 22. Eurovision still doesn't have credibiity. Sure some credible songs win and do well - but lot of what is sent is still hilariously terrible. We love it, and that's the show we watch, but it doesn't create a thirst for a selection show outside a relatively small group of ESC fans.