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annals of communications
The New Yorker - February 1, 1993

late-night gamble

NBC suffered a major blow to its prestige when it lost David Letterman, but will it get the last laugh?

by ken auletta

Although David Letterman and his contract negotiations had been the subject of intense media attention for months, the prospect of facing reporters for a press conference to announce his new contract filled him with dread. Now, on Thursday, January 14th, he entered a conference room on the nineteenth floor of CBS headquarters, on West Fifty-second Street. Twelve television camera crews were there, and perhaps a hundred reporters. Letterman knew that many of the assembled journalists had written a lot about whether he would decide to stay at NBC, where "Late Night with David Letterman," broadcast at 12:30 A.M., had become a hit, or would accept a more lucrative offer from a rival network or a syndicator. Journalists had written that his humor--sometimes wicked, always youthful--might not play as well to an older, more mainstream audience, such as he would have if he chose an 11:30 P.M. show on CBS. Now it was official: he would be on CBS five nights a week at eleven-thirty, beginning next fall.

"I felt like these people were wanting me to collapse on the floor, sobbing or something," Letterman said to me after the press conference, in the only extensive interview he has given about his departure from NBC. "And I look back and I see Siskel and Ebert"--the film critics Gene Siskel and Roger Ebert--"and I say, 'Why are these guys here?' Of course, they're here for the refreshments!"

As Letterman stepped to the lectern for the press conference, he glanced down and saw that powder-blue carpeting covered every inch of the floor, even the small stage. He was convinced, he said later, that it would muffle "any attempt at laughter." He worried that reporters would press him about competing against Jay Leno and "The Tonight Show," on NBC at 11:30, and he worried that he might sound glib or angry. His anxiety was heightened when Howard Stringer, the president ofthe CBS/Broad-cast Group, said in his introductory remarks that this was "a red Letterman day" and the reporters groaned.

When Letterman's turn to speak came, however, something clicked. First, he thanked the reporters "for that stirring ovation"--when their greeting had been stony silence. A few moments later, he declared, "I never dated Amy Fisher. I fixed her car. I helped her with her homework. I never laid a hand on Amy Fisher!" He had them laughing. When a reporter asked if his lucrative new contract might take the edge off his humor--he will be paid at least forty-two million dollars over three years--he replied, "Come up here and let's settle this now!" A few seconds later, he looked at the same reporter and said, "There are many, many other things to make fun of in this world. Beginning with your tie, for example."

Letterman was asked whether he would bring along the bandleader Paul Schaffer, a frequent foil for his humor, and he slapped his head and exclaimed, "Oh, shit--Paul!" He then turned to Laurence Tisch, the chairman of CBS, who was seated nearby, and asked, "Have you got a little extra for Paul?" The reporters laughed again when he was asked if his humor would be too hip for an earlier, probably older audience and he replied, "I don't know. You people seem to be keeping up."

Stringer was clearly impressed. "He defused all the tough questioning by, in effect, demonstrating what he stands for and who he is," he said later. "It was an awesome performance." And it was one that would play to any audience.

IN June of 1991, when NBC chose Jay Leno to replace Johnny Carson as the host of "The Tonight Show," Letterman was so depressed that he thought, he says, "I didn't have a future." Knowing that he needed reassurance, Letterman's agent, Michael Ovitz, the president of the Creative Artists Agency, set out to restore his client's confidence, and to establish Letterman's viability in the marketplace. Letterman's unhappiness and the possibility that he might be lured away from NBC led to a prolonged courtship, carried on by a number of suitors. The courtship started on the afternoon of July 27, 1992, when various television and studio executives began appearing at C.A.A.'s headquarters, in Beverly Hills, to meet Letterman. They included Stringer, of CBS; Robert Iger, then the president of ABC Entertainment; Brandon Tartikoff, then the chairman of Paramount Pictures; Rupert Murdoch, the chairman of Fox; and representatives from Warner Brothers and Columbia Pictures. While it is the Hollywood custom for network and studio executives to function as buyers, listening to writers, directors, producers, and agents pitch ideas, the roles were reversed in this case: buyers became sellers. The switch was orchestrated by Ovitz, who knew that he could arrange it, because of Letterman's financial importance to NBC: with a nightly audience of three million, Letterman made NBC a net profit of twenty-five to thirty million dollars a year.

"Late night is one of the last great money-making time periods," Howard Stringer says. That notion has certainly proved true at NBC, where, for years, late-night programming has been a fountain of profits. In fact, by 1992 late night was the network's most lucrative part of the day, netting an estimated sixty to eighty million dollars a year. NBC reserves sixteen advertising minutes during the hour of "The Tonight Show," and allots half of that time to local stations to sell on their own. It charges roughly thirty-five thousand dollars for each thirty-second commercial it sells during "The Tonight Show," for a nightly total of five hundred and sixty thousand dollars. The five-night total comes to two million eight hundred thousand dollars. In the 1990-91 season, "The Tonight Show" took in a hundred and fifteen million dollars, according to Broadcast Advertisers Reports; minus a fifteen-per-cent commission for advertising agencies, the show's network revenues totalled ninety-eight million dollars. The Letterman show, coming on later and consequently reaching a smaller audience, sold each spot for an average of nearly eighteen thousand dollars; it brought in fifty-one million dollars in the 1990-91 season.

The executives hoping to buy Letterman's services knew, of course, that he was angry at NBC for having chosen Leno, but they may not have realized the depth of his anger. "It was the one real disappointment I had in my professional life," Letterman said at the CBS press conference. In fact, when Warren Littlefield, the president of NBC Entertainment, and John Agoglia, the president of NBC Enterprises, flew from California to New York to tell Letterman that NBC had chosen Leno, Letterman listened, told them that he wanted to be released from his contract, and stalked out of the room. "It was me trying to pull off some bottom-of-the-ninth heroics that might reverse the tide," Letterman disclosed in our interview. Still, the network's having chosen Leno was just one more item on a list of resentments that Letterman felt against NBC. For much of his tenure there--thirteen years--his show, he felt, had been treated like a stepchild. As much money as he made for NBC, as talented as he was, NBC executives kept their distance.

When Letterman and his co-executive producers, Peter Lassally and Robert Morton, assembled in C.A.A.'s conference room last July, they were trying to plot the future. Did networks have a future? Had the balance of power tipped from the networks to the local stations or to the hundreds of cable channels? The first pitch they heard was from Howard Stringer. He knew that Letterman might prefer the security that a network contract could offer him, in contrast to some other arrangement; more important, he also knew that Letterman had expressed a desire to have an eleven-thirty time slot. So Stringer first set out to undermine his network competitors. "You're too decent a person to be going to Fox," he recalls saying, only half in jest, about Rupert Murdoch's relatively new network. As for ABC, Stringer simply mentioned that it already had a successful eleven-thirty show--Ted Koppel's "Nightline."

Stringer then talked about the studios, warning Letterman not to be enticed by syndicators, who did not have their own affiliated stations. Linking a chain of local stations to broadcast a syndicated show is a "fragile" enterprise, he said, particularly since the competition for late night on independent stations was already fierce. Paramount had Arsenio Hall syndicated both to network and to independent stations; Whoopi Goldberg and Rush Limbaugh were scheduled to have talk shows sold to local stations starting in September of 1992; and, in addition, Fox was planning a show starring Chevy Chase, to begin in the fall of 1993. "You're trying to find homes all over the place, like satellites in space looking for a landing," Stringer said.

Stringer was also aware that Letterman is what his friends call a nester--someone who doesn't like change. He said, "Why a network? A network gives you a home and a long-term guarantee. A syndicator is here today and gone tomorrow. A syndicator is not a home." A syndicator couldn't offer a single time period in which the show would be broadcast nationwide, Stringer argued.

When Bob Iger made his pitch, he noted that ABC was committed to Ted Koppel and "Nightline," and said that Koppel hoped Letterman would join with him in building a solid late-night franchise.

Letterman interrupted Iger to praise Koppel, then wondered aloud whether his show would provide a strong lead-in for "Nightline."

Iger awkwardly responded that maybe "Nightline" would be a strong lead-in for Letterman. He then spoke of ABC's "demos," knowing he didn't have to explain to Letterman that demographic surveys showed ABC to be No. 1 in reaching prime-time viewers aged eighteen to forty-nine--the group most coveted by advertisers, who believe that younger viewers are more likely than older ones to try new products. Finally, Iger, like Stringer before him, turned to the idea that his network could providea more comfortable home for Letterman. ("What I was selling more than anything else was a network personality," Iger said later.) ABC and its parent, Capital Cities/ABC, were known for their emphasis on collegiality, Iger said. Unlike General Electric, which owned NBC, or Laurence Tisch, who owned a controlling interest in CBS, they were lifelong broadcasters. They were deft in communicating their concern for talent. Implicit in Iger's remarks was the idea that even though Letterman might find Howard Stringer and Jeff Sagansky, the CBS Entertainment president, to be wonderful people, if Letterman went to CBS his real boss would be Larry Tisch, and he would merely be replacing one boss he didn't like--G.E.--with another. And if he went to Fox he would have to contend with Rupert Murdoch. These bosses might provide Letterman with a foil for his humor, as G.E. had done, Iger implied, but he would still be miserable.

Following Iger, Jamie Kellner, the president of Fox Broadcasting, made his pitch. Kellner, who has since left Fox, had been campaigning to get Letterman to Fox from the day the network was launched, six years earlier. Kellner and his former boss, Barry Diller, who left Fox in early 1992, had also tried to hire Ted Koppel, offering him what a knowledgeable source says was an annual contract worth twelve million dollars. "What is unique about Fox and what the audience likes about us and what sets us apart is identical to what Letterman is," Kellner recalls telling Letterman. Both appealed to younger viewers. Both were known for their irreverence. Both were young--Letterman is forty-five--and hungry. Both had an edge, a contemporary style.

Murdoch, accompanying Kellner, said little, but he spoke up at one point to mention another Fox strength: Letterman would have the flexibility of starting his show at eleven, or even at ten-thirty. This was an idea that had apparently never been discussed with other Fox executives, or with Chevy Chase, who had been promised the 11 P.M. slot. But it was an idea that several syndicated bidders later came to. The logic was inexorable: the earlier the Letterman show was broadcast, the bigger the audience; the bigger the audience, the greater the advertising revenue.

As the first of the syndicators to speak, Brandon Tartikoff, who is no longer at Paramount, took a whack at the networks. "In late night, just like daytime, syndicators swing a big stick," he recalls saying. "Outside of NBC, everybody has a problem with late night." Fox had nothing, he said. After "Nightline," ABC had nothing. And CBS was losing both stations and money in late night, because the stations made more money from reruns or old movies than they did from CBS's patchwork of action-adventure shows plus the cash compensation the network paid them. Thus there was no advantage to a network, and there was a decided financial benefit in going with a syndicator. A syndicator makes money in two ways. First, it receives a share of advertising dollars, as the networks do; then, unlike the networks, which pay their affiliated stations to distribute network shows, syndicators reverse the dollar flow and charge each station. And among syndicators, Tartikoff said, Paramount ranked No. 1 in first-run syndication, and made more money from shows like "Star Trek: The Next Generation" than from any other part of its television or movie businesses. Tartikoff didn't dwell on Arsenio Hall, for Hall would be competing with Letterman for many of the same stations and time slots in late-night syndica-tion, and also competing for the favor of Tartikoff.

The pitches stretched over two July afternoons, but, even so, did not include all the eventual bidders. In the next few months, Letterman was also approached by Michael Eisner, the chairman of Disney; by Viacom, which owns the MTV and Showtime cable channels and also produces shows for the networks; and by Herbert Siegel's Chris-Craft Television, which retained as a consultant Fred Silverman, the former NBC president, who had approved Letterman's first network contract, in 1979.

SOON after the pitch meeting last July, the courtship of Letterman heated up. No suitor was more ardent than Howard Stringer. He took Letterman's producers to the United States Open tennis matches. He came across an anthology of Civil War pictures containing a photograph of Dr. Jonathan Letterman, a Civil War surgeon, and sent it to Peter Lassally with a note: "If you all decide to come to CBS, I can promise you better accommodations than those depicted in the photograph. You will also leave the Civil War at NBC far behind." He sent along a tape of Connie Chung, of CBS News, whose husband is Maury Povich. On the tape, Chung gave several reasons that Letterman should switch to CBS, including this one: "For one year, whenever Maury and I make love, I promise to say, 'Oh, Dave! Oh, Dave!' "

Although Letterman and his producers thought the Chung tape sophomoric, they were partial to Stringer. But they wondered whether the CBS affiliates would cooeperate with the network by clearing the eleven-thirty time slot for Letterman. Asked about Stringer's gifts and missives, Letterman said, "Save his money and get me another affiliate!"

ABC was also wrestling with a predicament. Some programmers at the network wanted to challenge the news division, which produces "Nightline," by inviting Letterman to precede, not follow, Koppel. They worried that if Letterman signed with a syndicate he would be a threat to "Nightline." One network official said at the time, "If David chooses syndication, 'Nightline' may be dead. Most of the available slots for Letterman are on ABC affiliates. He would displace Ted Koppel in many of them." The nightmare was that ABC would not only not sign Letterman but would also lose "Nightline," which alone earned twenty-five to thirty million dollars a year for ABC.

Koppel, for his part, decided to visit Letterman at his NBC offices, on the fourteenth floor at 30 Rockefeller Plaza. Once there, he insisted that hot dogs be brought in for lunch, and the two men kicked around a soccer ball, one of many pieces of sports equipment in Letterman's office. "You would be happy at ABC," Koppel recalls saying. "There would be a symbiosis between 'Nightline' and the Letterman show." Letterman was flattered, he said later, for he admires Koppel.

As Koppel left, making his way down a long corridor to a bank of elevators and saying hello to NBC people in the hallway, Letterman suddenly stuck his head out the door and yelled, "And don't come back!"

NBC, meanwhile, was having troubles of its own. Jay Leno was miserable. His ratings had fallen twenty-four per cent from his "Tonight" debut, in May, and there had been so much turmoil on the show's set that in September NBC fired Helen Gorman Kushnick, Leno's executive producer and manager of seventeen years. Leno's future, an NBC executive with a say in it conceded in November, was "shaky." The network itself was mired in third place in the prime-time ratings race, and it was hounded by rumors that General Electric wanted to sell it. To make matters worse, NBC's president and C.E.O., Robert Wright, and his management team were baffled by Letterman. They didn't know whether they should "get close or go away," as one executive put it; that is, they didn't know whether Letterman wanted to be courted or to be left alone. In the past, the network had left him alone. While Letterman did at times feel neglected, he also liked the network's hands-off attitude. "The truth is, we were more comfortable like that," he said after he announced that he was leaving NBC. "But you also want to feel like you're part of the family. Instead, we felt like our efforts were always going to be secondary to 'The Tonight Show.' "

While NBC pondered what to do about Letterman, CBS was trying to improve its relations with its affiliates. In May, it had announced a cut in the compensation it pays to affiliates, but in early October it announced that the cut would be only half as big as it had said originally. That week, the CBS-affiliate board officially endorsed the network's plan to hire Letterman for an eleven-thirty show.

Fox asked its stations how they would feel about a Letterman show at ten-thirty. "Fox is clever," observed Phil Jones, the president of the Meredith Corporation's Broadcasting Group, which owns seven stations, including two Fox affiliates. "They want to package it as late prime." The idea was to use Letterman and Chevy Chase as a two-hour block, from 10:30 P.M. to 12:30 A.M. As for the syndicators, they continued to discuss among themselves what they might offer Letterman, although byOctober he had cooled to the idea of syndication. The marketplace for selling shows to independent stations had weakened. Whoopi Goldberg's new talk show was not building, Arsenio Hall's ratings had fallen, and the Dennis Miller show was already history.

REGARDLESS of the efforts expended by the suitors, they all faced one obstacle that none could overcome for the moment: Letterman was under contract to NBC until April of 1993, and was forbidden to negotiate with anyone else until January of 1993. The contract, which had been negotiated by Letterman's longtime lawyer, also stipulated that NBC could keep Letterman off the air for a full year and that it had the right to match any offer; for those two reasons, the lawyer had been replaced. In the spring, Letterman had also replaced his longtime manager, Jack Rollins, bringing in Michael Ovitz and C.A.A.

In October, Ovitz set out to bring a measure of stability to the relationship with NBC. If the network freed Letterman to talk to other suitors, Ovitz suggested, it could buy some necessary good will. With time, perhaps Letterman would choose to remain at the only network home he had ever known. An NBC executive recounted what Ovitz had told the network: "You're dealing with a human being who is a time bomb. He won't make it under these terms. Let's go to the principle of fairness. If you're ever going to have him continue, let him look at options and he'll agree to extend his contract to June." Further, when Robert Wright made the request that Letterman not talk to the press at any time during the negotiations, Ovitz gave Wright his word. On October 30th, NBC announced that Letterman had agreed to extend his contract to June and, in return, was free to entertain offers immediately. Within days, C.A.A. dispatched to each bidder a list of nine questions, including one that was crucial: "Will you pledge to an eleven-thirty time period?" An initial deadline of November 11th was set for each bid.

Among the bidders, CBS started with an advantage. It had an open eleven-thirty time slot, unlike ABC. It had better stations than Fox. It had what no syndicator could match--the promise of a home with a single, uniform time period. And it had Howard Stringer, who had become a favorite of Letterman's producers, Lassally and Morton. (True, Stringer--like every other suitor--had had no contact with Letterman himself, having conversed with him only during the July pitch meeting.) CBS now bid nearly fourteen million dollars for Letterman, agreed to grant him the ownership of the show, and promised profit participation if he achieved at least a four rating--four per cent of all viewers at eleven-thirty. CBS gave what were interpreted as affirmative answers to C.A.A.'s questions, and offered Letterman a three-year guaranteed contract plus production costs of twenty-five million dollars. Even with this generous offer, plus fifteen million dollars that it expected to pay to affiliated stations to clear the eleven-thirty time period, CBS executives initially said they expected the network to make an annual profit of at least fifteen million dollars by signing Letterman.

ABC decided to pass. Iger asked if a bid to broadcast Letterman at midnight, after Koppel, would be acceptable, and when C.A.A. said that it would not, the network didn't submit a formal proposal. Murdoch instructed Fox to make an offer for a show starting at either eleven or eleven-thirty. Its money package was similar to CBS's, including comparable financial incentives based on ratings. But Murdoch was not optimistic. "He's a talented, insecure artist, who feels safer at an older network," Murdoch said of Letterman in November. By then, the syndicators had played their trump card: money. Viacom, which had not been invited to the July pitch meeting, phoned Ovitz in October and asked to be included. Its final bid, according to one Viacom executive, would guarantee Letterman a three-year contract and pay him a minimum of twenty million dollars if he achieved the same 2.8 per cent rating he was getting, and thirty million if he reached a rating of four per cent. Glancing at a chart that itemized what Viacom would charge stations and advertisers, the executive said, "If he does a five rating, he'd be making about sixty million dollars, and Viacom would make about thirty million." The Viacom executive recalled that Letterman's reaction, relayed by an associate, was short and sweet: "Oh, an Oprah offer!"

Paramount, which was already committed to Arsenio Hall, folded its cards. Disney and Columbia and Warner's entered bids, but they were not as lavish as Viacom's bid, or as that of Chris-Craft Television, which offered to syndicate Letterman at 8 P.M. in at least half the country and at 11:30 P.M. in the rest, promising that he would earn thirty to forty million dollars annually.

The money did not dazzle Letterman. "He has exceedingly high moral standards," his former manager, Jack Rollins, says. "When we started 'Late Night,' the original contract was for five years. At the two-year mark, it was clear they had a hit show. It was suggested to David by various people, including me, that he go in and renegotiate. He refused to do that. He said, 'I signed a contract, and I'll live with it.' "

In all, there were seven bidders. Ovitz pushed back the November 11th deadline several times, as C.A.A. used rival suitors to extract more from each. Finally, the deadline was extended into the first week of December. Each bidder, including NBC, now understood who its principal rival was, and took aim at CBS and Howard Stringer. "CBS cannot deliver a viable eleven-thirty lineup," an NBC executive in New York declared. Many CBS stations already enjoyed strong ratings with syndicated shows like "Murphy Brown," "Night Court," "The Arsenio Hall Show," and "Newhart," he pointed out, and would lose money if they sacrificed half their ad revenues by switching to Letterman. CBS could buy stations off by increasing their compensation, "but it would eat up all their profits," he said. "If Letterman expects to move to eleven-thirty everywhere in the country by signing with CBS, it's a false negotiation."

Stringer acknowledged that CBS had clearance on only fifty per cent of its stations at 11:30 P.M., but he said that if the network hired Letterman he would launch the show with sixty-five per cent clearance, and ninety per cent of the stations would broadcast the show by midnight. Privately, Stringer wanted to counterattack, but he held his tongue. CBS did not want NBC to change its mind and fire Leno. Nor did Stringer want to slam the door on Leno, in case CBS failed to sign Letterman.

By most accounts, Letterman grew extremely anxious as December approached. He was "freaking out" over clearances, according to one bidder, who had guessed this from remarks tossed off by Lassally and Morton and the C.A.A. agents. "Letterman is saying to himself, 'Why am I leaving?' " the bidder said, but he could have only surmised this, for, aside from courtesy letters of thanks to bidders like Stringer for their gifts, Letterman was in contact with no one outside his immediate entourage, even at NBC. From NBC executives came tales of strange Letterman behavior. He was said to have locked himself in a closet and screamed for three hours one night after taping the show. Associates of Letterman deny this, but one did acknowledge that he was "in an emotional state."

Letterman admits that he hated "the uncertainty of it all," and says, "For me, emotionally, it was very unsettling." He remained angry at NBC, yet he feared that he needed it, for in late-night TV only NBC could now deliver almostthe whole country at a given hour. By early December, Letterman had made a decision that would have severely depressed Howard Stringer if he had known about it. "We want to stay here," a Letterman friend declared. "He'd like to do 'The Tonight Show.' Here he'd have a hundred per cent clearance." Yet Letterman's team remained ambivalent, angry that NBC still praised Leno and still didn't give Letterman his due. "We have a guy everybody wants, and they have a guy nobody wants," the friend said. "Yet they stay with the guy nobody wants."

Letterman's unease must have increased when he saw Leno's ratings for November. The ratings climbed to nearly five per cent during the month, from a low of 4.2, and his youthful demos also improved, prompting NBC executives to boast about how Leno had settled down, how he was funnier, more relaxed. "We feel we're only getting better, and that's what the numbers say," an NBC strategist said on December 1st. If he were forced to choose between Leno and Letterman at that moment, this man said, he would choose Leno.

By December, NBC had begun to feel some hope that Letterman could be induced to stay at twelve-thirty. NBC, the strategist said, was prepared to give Letterman ownership of his show andto sweeten his contract in other ways. Still, NBC executives guessed that CBS and Stringer would likely win the first of two hands. The guess proved correct. Early on the evening of December 7th, Ovitz presented to NBC a document containing the CBS bid and announcing that CBS had indeed won the first hand. After being notified, Stringer immediately dispatched a crystal Steuben eagle to Letterman with a note: "If the eagle hasn't landed, at least it's in flight." He sent Steuben bulls to Lassally and Morton.

NBC had a deadline of January 15th: by then, it had to match the offer or lose Letterman. As Christmas approached, NBC executives began to believe thattime might be their ally. "We thinkwe have a shot at keeping him," saidone member of NBC's inner circle of decision-makers. Accepting this possibility, and urged on by Ovitz, who wanted NBC to boost his client's confidence by at least making an offer, Robert Wright, who had spent most of his career at G.E. and barely knew Letterman, made an appointment to visit him four days before Christmas. He came alone. He told Letterman how much the network valued him, how much it hoped to keep both Letterman and Leno, how vexing this decision was, and how much he hoped he could keep the NBC family intact.

Letterman is respectful when he recalls this private encounter. "There was a humanity about the guy that made me feel that he and I were more alike than other people at NBC," he said in our interview. "He seemed to me to be genuinely concerned about me. He impressed me, for the first time, that he really, really didn't want me to go. I talked to Warren Littlefield many, many times, and he never said, 'I hope you'll stay.' " (Littlefield says that on several occasions he did urge Letterman to stay.)

Because of holiday vacation schedules, there was insufficient time for Wright's team to caucus before January 7th, when NBC's management would go to Florida for a scheduled retreat. Besides, one top executive said, they needed all the time they could get to decide whether Leno or Letterman had the brighter future.

To help its executives decide, NBC commissioned "competitives"--tests of the appeal of performers--to determine who might play better at eleven-thirty. The tests are conducted in selected cable homes, and in this case, the Letterman and the Leno shows were alternately broadcast at 11:30 P.M. The tests proved inconclusive. "From a sales perspective, there's not much difference," one NBC executive said. Either Leno or Letterman, it appeared, would command a premium from advertisers. But in the short run there was a difference--a point that Leno stressed in an interview. "They have a show that is working now," Leno said. "What are they going to do, replace it with a show that's untested, and pay two times as much for it?"

THE box that NBC executives had put themselves in offered no easy way out. One executive--the only one of six NBC officials who, on being asked in late December, said he favored dumping Leno--wanted to know what would happen if they kept Leno. Would Letterman go to CBS and destroy NBC's "Tonight" franchise? Would Letterman and Leno destroy each other, leaving ABC's "Nightline" triumphant? Would Dana Carvey, of "Saturday Night Live," agree to replace Letterman and follow Leno at twelve-thirty? Would Carvey, who is usually scripted, be any good in an unscripted show?

On the other hand, if NBC decided to purge Leno, would it agree to match not only CBS's annual salary offer for Letterman but also production costs and bonus clauses that, according to CBS, could boost the yearly total to fifty million dollars? Would NBC also pay Leno a severance package of ten million for the remaining year and a half of his contract? (It was frequently reported that NBC paid Leno three million dollars a year, but in fact the figure was six and a half million.) Could Leno be persuadedto dress up his demotion by acceptinga weekly prime-time variety hour?And, with CBS officials concedingthat if Letterman was given Leno'sjob they would likely offer Leno CBS's 11:30 P.M. time slot, what if Leno signed with them?

When Bob Wright gathered his executives in Boca Raton, the Leno-Letterman topic was not on the agenda, and, in fact, it was never raised in the official meetings. But it was discussed endlessly in private. The West Coast contingent, led by Warren Littlefield and John Agoglia, championed Leno. Much of the delegation from New York did, too. Wright, to prod his team, played his cards close to the vest, often saying, "I don't have an adamant point of view." He talked to Ovitz on the phone all that week and through the weekend, exploring options, seeking a way out of the box.

Ultimately, there were only intangibles for Wright to deal with. "The decision on Letterman was as much an image as a business decision," a senior NBC executive said. From a dollars-and-cents point of view, it would cost NBC more to keep Letterman than to lose him. But if Letterman went to CBS, this executive feared, the greatest loss would be not the damage Letterman might inflict on Leno's ratings but the damage done to NBC's prestige. If it conveyed to Hollywood and the creative community a sense that NBC was not a happy home for talent, the cost could be incalculable.

There are limits to dollars-and-cents logic, as NBC executives were being reminded. The emotional nature of the entertainment business was rudely brought home to NBC in early December, when the producers of "Cheers," the network's top-rated program, which had been a fixture on NBC for eleven seasons, suddenly announced that this would be the show's final season. Why? Because, officials of both NBC and Paramount, which produces the show, explained, the show's star, Ted Danson (who is reported to have left his wife and to be dating Whoopi Goldberg), had convinced himself that he needed to transform his life. Seized by this powerful emotion, Danson walked away from a weekly salary of half a million dollars.

In show biz, as in life, emotion is the x factor. As NBC executives struggled to reach a decision, they knew that their decision, like Ted Danson's, finally would not be quantifiable. They had to rely on their feelings, as they knew that Letterman would. They knew that it was pride that drove Letterman to want to win the eleven-thirty competition and to become the host of "The Tonight Show." If they were honest with themselves, they knew that the network had put itself in this box by mishandling Letterman when it chose Leno to succeed Johnny Carson. They hoped that another emotion--Letterman's desire for security--would keep him at NBC. Yet they also knew that no matter which way things went NBC would lose.

And, of course, NBC lost Letterman. There is some dispute over whether the network really intended to lose Leno. Bob Wright kept talking to his friend Michael Ovitz, and, according to several people around Letterman, on Saturday, January 9th--five days before the decision was announced--Wright explored this proposal: would Letterman agree to stay with "Late Night" through June of 1994 if NBC pledged to replace Leno with Letterman after that? The money, Wright said, would not match the CBS bid; nor would Letterman own the program. But NBC would give Letterman what he always wanted: Johnny Carson's show. "They offered Letterman 'The Tonight Show' in a detailed offer," someone who should know declared. Wright knew he would lose one of his talented comedians, but his great fear was that he would lose both. Surely if Leno heard his job had been offered to Letterman he would leave, too. Wright asked Ovitz to keep this confidence. Ovitz asked for the offer on a piece of paper. Wright said they would fax a proposal the next day. Meanwhile, Ovitz phoned Letterman to inform him of NBC's offer. Although NBC had not matched the CBS bid, Ovitz left Letterman to sleep on it overnight. "It's your decision," he told his client.

The next day, John Agoglia, who handles all business affairs for NBC Entertainment, reportedly phoned C.A.A. and said that NBC would rather not put the offer on paper. Instead, he would read it. Others now heard directly that Letterman could, finally, sit in Johnny Carson's chair. They assumed that NBC really wanted Leno to quit, since if he did the network wouldn't have to pay the ten-million-dollar severance penalty. NBC "emphatically" denies making "an offer," insisting that, though it wished to keep both comedians, Leno was its choice.

Someone is not telling the truth, and Jay Leno, for one, did not sound entirely convinced of NBC's devotion when reporters pressed him about whether he felt secure at NBC. "In the way that I think Saddam Hussein feels secure," he said. "Yes, I think that I have a bunker. I just don't know how long."

It's not clear who wins the public-relations contest. Or whether CBS will make money with Letterman. Larry Tisch is convinced that his network has acquired a late-night franchise. "We don't see a financial risk," he says. "David Letterman is a genuine star. You pay a lot for him, because he brings an audience."

When Letterman was asked if CBS will earn a profit from his show, he shrugged, and said, "I got a lot of things to worry about. This is not one of them. These guys didn't fall off a truck from Poughkeepsie!"

THREE clear winners emerged from the poker game. One is Howard Stringer, whose persistence and charm helped bring Letterman to CBS, and, with him, the possibility that CBS will break NBC's late-night monopoly. (Larry Tisch was so elated that when he was asked whether he was worried about becoming a target of Letterman's barbs he remarked casually, "What difference does it make to me? I have a solid family.")

A second winner is Michael Ovitz. "He's a smart, thoughtful man," Letterman says. "And the people he works with are smart and thoughtful. I'm a satisfied customer." Ovitz never set a fee for his services in getting Letterman and his team an annual total of at least thirty-nine million dollars in salaries and production costs; he decided to address this matter after an agreement was reached. If C.A.A. takes the standard six-per-cent packaging fee, a knowledgeable executive at a rival agency says, its annual fee will total at least two million three hundred and forty thousand dollars, and it will also receive ten per cent of the gross sales from syndication or any other revenues generated by Letterman. And Ovitz, even as he helped take Letterman away from NBC, was careful to strengthen his friendship with Bob Wright and, presumably, General Electric. Ovitz repeated his pledge to Wright not to talk to the press when Letterman decided to leave NBC. Even after press accounts questioned NBC's veracity, Wright refused to respond to press inquiries about an offer to Letterman, and reassured associates that "Michael" would remain silent. He was serenely confident that this fractious moment would pass, even as Ovitz' associates were saying that Letterman had been offered Leno's job.

The most obvious winner is David Letterman, who now will earn about two hundred and seventy thousand dollarsa week from CBS. The day afterhis CBS press conference, Letterman looked back, and ahead, in our interview. He had just taped his last show of the week. He tugged on a baseball cap--one of many he keeps in his dormitory-like office, which has bare white walls, a simple wooden desk that looks as if it had been issued by the government, and an elaborate sound system that constantly blares music.

Softly, Letterman asked if he might light a cigar. Then he spoke about his years at NBC, which are to end on June 25th. "We caused them trouble," he admits. "I can't pretend it was all Dave the good guy. . . . But we all understood that it's professional wrestling. At the end of the year, everybody adds up the dollars."

Letterman was vague about the format of the new show, saying that he wasn't yet convinced that he had to alter his current format radically for a show that would be broadcast an hour earlier. He was also uncertain whether the show would still be taped in New York. "New York City definitely has the edge, because we're here and we're comfortable and we know what life is like here," he said. Yet an associate has said that if Letterman had been given the "Tonight" spot "he would have wanted to do the show out of Burbank, because that's where Johnny did it"--although, of course, Carson first did "Tonight" out of New York. Carson was his hero; as a boy in Indiana, Letterman stayed up to watch "Tonight," and he came to call Carson "my mentor."

Letterman's secretary opened the door. "Sorry to interrupt," she said. "It's Johnny Carson. I told him you were in the middle of an interview."

"Send him in!" Letterman barked, taking a deliberate puff on his cigar for effect, then avidly reaching for the phone. (c)

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