That overheard snippet about “public literary criticism” is really pretty funny, or just obtuse, given–as you point out–the number of literary reviews that operate right at the interface between academia and the wider public: look how many of their reviewers and essayists are scholars. (Thanks, by the way, for the shout-out to Open Letters!) It’s true that the kind of specialized scholarship published in academic literature journals is not in its usual form very appealing to non-specialist readers (though there are certainly exceptions, both of works and of readers), but I would think it’s much easier to imagine bringing literary expertise into the public sphere than some other kinds of academic work simply because so many people outside the academy read books!
That said, it’s still quite obvious that literary commentary aimed outside the academy is not going to get anyone tenure or promotion. I blame the chortlers!