Conan O'Brien and Jay Leno battle for the Peacock Network's coveted evening spot

When NBC first announced its unprecedented plan to put Jay Leno into prime time five nights a week for fall 2009, its executives crowed about the money the network would save by not having to develop pricey dramas at 10 p.m., and how the comedian could guarantee 46 weeks of fresh programming a year. ”Not only is the cost of the show lower, but we are offering advertisers a DVR-proof show that you can join in progress,” promised NBC co-chairman Marc Graboff in December 2008. ”It’s a better solution.”

To pretty much no one’s surprise but NBC’s, this ”solution” turned out to be nothing but a monumental headache — especially for a redheaded comedian named Conan O’Brien. Viewership for The Jay Leno Show, which premiered last September, plummeted from 18.4 million to 5.3 million (30 percent below what NBC dramas like Law & Order: SVU and ER were attracting at the same time last year) in just 17 weeks. Ratings for the post-Leno local newscasts have also fallen. Philadelphia and New York City, for example, were down 48 percent and 37 percent, respectively, compared to the 2008 November sweeps (steep drops that cannot simply be explained away by the lack of an election). Hindered by a weaker lead-in, the Conan O’Brien-hosted Tonight Show was routinely trounced by David Letterman’s Late Show — something that hadn’t happened since 1995. With affiliates’ protests growing louder, NBC announced on Jan. 10 that it would yank Leno out of prime time on Feb. 12 and turn it into a half-hour franchise at 11:35 p.m., meaning O’Brien’s Tonight Show would be bumped to 12:05 a.m. — a first in the show’s 55-year history. (Jimmy Fallon would also have to move Late Night back a half hour, while it could be Last Call indeed for Carson Daly, who would likely lose his 1:35 a.m. berth in this scenario.)

But hold on a second… As of press time, O’Brien had rejected NBC’s offer and was in no mood to go gentle into that good night (or morning, as it were). The comedian issued an emotional statement on Jan. 12: ”I cannot express in words how much I enjoy hosting this program and what an enormous personal disappointment it is for me to consider losing it. My staff and I have worked unbelievably hard and we are very proud of our contribution to the legacy of The Tonight Show. But I cannot participate in what I honestly believe is its destruction. Some people will make the argument that with DVRs and the Internet a time slot doesn’t matter. But with the Tonight Show, I believe nothing could matter more.”

O’Brien, who signed a deal with NBC in 2005 guaranteeing him the Tonight Show gig in 2009, went on to say he has no other offer from a competing network, and that he hopes ”NBC and I can resolve this quickly” — but that doesn’t mean he’s without options. Fox appears eager and willing to enter into talks with the 46-year-old comedian, but only after he resolves his differences with NBC. ”Creatively for me, it’s a no-brainer,” says Fox Entertainment president Kevin Reilly. ”I love him, and our late- night real estate is available, so we’ll see what happens.”

In the meantime, the key lies in the fine print of O’Brien’s contract — reportedly worth between $10 million and $20 million a year. (One high-powered agent called it ”the Magna Carta” of hosting deals because of all the guarantees it reportedly includes.) It’s likely that a performance threshold was built into the deal, in which case the Peacock could argue that moving O’Brien was necessary due to his abysmal ratings: Since O’Brien’s debut in June, the once-venerable late-night franchise is down 50 percent from a year ago, when Leno was pulling in an average of 5 million viewers. (O’Brien has, however, enabled NBC to get younger, lowering The Tonight Show‘s median viewer age from 55.6 to 46.7.) ”They thought they were trading out Joe Montana for Steve Young,” says the agent. ”He had his chance. He got the gig of a lifetime and he blew it.”

But O’Brien does have an ace — or two — in the hole: Angry fans (and celebrity pals) of the carrot-topped comedian feel strongly that he’s getting the shaft from NBC. Within hours of his statement’s release, tweets of support were coming in from the likes of Christina Applegate, and ”Team Conan” was the No. 2 trending topic. It also helps that he’s represented by William Morris Endeavor’s Ari Emanuel and Rick Rosen, two of the most powerful agents in Hollywood. ”There can’t be a better representative for Conan at this point,” says one competing network executive about Emanuel in particular (whose brother Rahm is President Obama’s chief of staff). The duo could negotiate a tidy settlement that might soften the blow of the demotion — or help pad the comedian’s wallet if Fox makes a formal offer but can’t cough up a comparable salary. (ABC made it clear last week that it was happy with Nightline and Jimmy Kimmel and therefore wasn’t interested in wooing O’Brien.) One thing’s for sure: Madison Avenue is already imagining the possibilities. ”Conan has the built-in younger fan base that syncs up far better with Fox’s audience than NBC’s,” says Shari Anne Brill, a strategic audience analyst for the media-buying firm Carat. ”Fox has stronger 9 p.m. programming now versus what they had in place when they tried late night in the early days. They have a better bench to promote both their late news and a possible Conan show at 11.”

With NBC and O’Brien at a stalemate at press time, the network’s initial plan to have everything settled with both him and the 59-year-old Leno by the time the Winter Olympics launch on Feb. 12 seems like wishful thinking. Since an ugly court battle also appears unlikely, one possible scenario would involve NBC buying O’Brien out of his contract — provided that O’Brien promises to stay off the air for a predetermined amount of time (say, until fall 2010 or January 2011). Of course, nothing about this late-night debacle has been that easy. ”The idea that NBC will let him out is preposterous,” says the high-powered agent. ”Just because he’s a good guy? They have to stop him from going to a competitor. It would be negligent to the stockholders if [they let him go].”

In the meantime, NBC needs to figure out how to fill its soon-to-be-vacant 10 p.m. time slot. Though writers and producers cursed the Peacock last year for taking away five hours of prime-time shelf space, now everybody is back to pitching NBC. ”In a weird way, it’s now the land of opportunity,” one studio president quips. NBC Entertainment chairman Jeff Gaspin says he’ll likely fill the void in the short term with Law & Order: Criminal Intent, reality shows, and Dateline. (Friday Night Lights could also be an option.) Looking ahead, the entertainment division already has 18 pilots in development for next fall, including a new spy drama from J.J. Abrams called Undercovers, a remake of the British hit Prime Suspect, and new series from Jerry Bruckheimer and David E. Kelley. ”Going back to the basics at 10 p.m. is the smartest play,” Gaspin told the press last week — though Leno thinks the network may have already achieved the outcome it was looking for. During his Jan. 11 episode, Leno quipped, ”Supposedly we are moving to 11:30, but even this is not sure. My people are upset. Conan’s people are upset. NBC said they wanted drama at 10 — and now they got it!” (Additional reporting by Dan Snierson)

Late Night Sound Bites

”I have to tell you, the folks here at NBC don’t handle these things well. They don’t have a lot of tact. Like, after they canceled the show, they told me if I put on 10 pounds I can get on The Biggest Loser.” —Jay Leno

”When I was a little boy, I remember watching The Tonight Show With Johnny Carson and thinking, ‘Someday, I’m going to host that show for seven months.”’ —Conan O’Brien

”You know the world is on its ass when David Letterman and I are considered the stable ones.” —Craig Ferguson

”Is anyone here flying this weekend? There are so many delays at the airport, my flight was bumped from 12:35 a.m. to 1:05 a.m.” —Jimmy Fallon

”A couple of minutes ago, Conan O’Brien, who was the host of The Tonight Show over there at NBC, announced that he would not follow Jay Leno at 12:05. Yeah, so you know what this means — that’s right, I knocked off another competitor.” —David Letterman