CBS Picks Stephen Colbert to Replace David Letterman. How Will the Late Night Landscape Change?

CBS  (NYSE: CBS  ) wasted little time in naming a successor to David Letterman, who has served over 20 years as the host of Late Show for the network. Stephen Colbert, whose contract to host The Colbert Report on Viacom's (NASDAQ: VIA  )  Comedy Central, expires at the end of the year.

Colbert will take over at an undetermined point in 2015 and no location or producers for his show have been named.

Naming Colbert as Letterman's replacement answers one late night question, but it creates a number of others: who will take over for Colbert, what will CBS do at 12:30, and can Colbert reverse the fortunes of a show whose profits have been falling?

The changing face of late night

Only a few months ago two 60-plus men -- Jay Leno (63) on NBC's The Tonight Show and Letterman (67 on April 12) on Late Show -- ostensibly ruled that late night roost with Jimmy Kimmel Live on ABC representing a younger alternative for people married to the major networks. Cable, of course, has younger-leaning shows with large digital followings like Conan O'Brien's Conan on TBS, Colbert Report and Jon Stewart's Daily Show on Comedy Central, and Chelsea Handler on E! But the kings of late-night were two older men who delivered older audiences and focused very little on digital content.

Letterman's viewers had a median age of 58.9 while Leno's came in at 58.2, according to AdAge. Jimmy Kimmel's weren't much younger at 54.1 despite the host being much younger (46), which suggests that networks simply draw older audiences.

But with Leno being replaced by Jimmy Fallon -- who is not only much younger at 39, but incredibly digitally savvy -- the entire makeup of late night television has changed. Kimmel has always shown an ability to create viral digital content and Fallon does it better than anyone with countless skits from his Willow Smith Whip Your Hair homage with Bruce Springsteen to his History of Rap skits with Justin Timberlake going viral.

To stay competitive in a market where shows may draw fewer live viewers due to the incredibly fractured marketplace, CBS needed a host who could prove a digital draw. Colbert has 6.2 million Twitter followers while Letterman only has 286,000. That still falls short of Fallon's 12.3 million, but it's better than Kimmel at 3.8 million.

Profits have fallen for CBS

Letterman brings in a lot of revenue for CBS -- $179.6 million in revenue in 2013, according to AdAge -- more than any other late night talk show. But his show also costs the network a lot to produce. In addition to Letterman's reported $20 million salary, his Worldwide Pants company gets a production fee from CBS to produce Late Show (and its 12:30 a.m. companion Late Late Show with Craig Ferguson). That has made making money on Late Show a challenge for CBS with profits down to less than $20 million in 2013, The Hollywood Reporter wrote.

Letterman's company is considered unlikely to continue producing the later show once Letterman leaves. Ferguson didn't seem to get serious consideration for Letterman's chair -- his contract with CBS expires at the end of 2014 and it's unclear if he wants to stay on the network or if the network wants him.

In addition to lowering costs by producing both shows in-house (and probably paying Colbert less than $20 million, though details of his five-year deal with the network were not released), CBS can also monetize its younger host in digital ways it never could with Letterman.

This leaves a hole at Comedy Central

While CBS solved a problem, Viacom now has one. Replacing Colbert at 11:30 p.m. on Comedy Central is not as simple as sliding a new host into his chair. Colbert Report is not a straight talk show, but a program built around Colbert's mock-conservative character. Colbert billed $52.1 million in 2013, AdAge reported, only slightly less than The Daily Show ($55.6 million), which airs before it. Comedy Central also lost a replacement option when it let John Oliver -- who filled in ably for Stewart last summer -- leave for a weekly program on HBO. 

The network now has a huge half-hour hole between Daily Show and the newly launched, but apparently successful @Midnight hosted by Chris Hardwick, which could just move up half an hour though a name change would be in order.

The next battle is over location

With Fallon bringing The Tonight Show to New York, efforts are already under way to lure Colbert to Los Angeles, The New York Post reported.

"I look forward to speaking with you about the possibility of bringing the successor to Mr. Letterman's show to Los Angeles," L.A. Mayor Eric Garcetti wrote CBS Chairman Leslie Moonves.

"What better place for The Late Show than The City That Never Sleeps," City Council Speaker Melissa Mark-Viverito countered in her own letter to Moonves.

Losing The Tonight Show cost L.A. an estimated 150 jobs, according to the Los Angeles Times, as well as any tourist revenue brought in by having the show as an attraction. Moving to L.A. would make it easier for the currently New York-based Colbert to book guests, but moving west did O'Brien no favors when he did so for his unsuccessful Tonight Show run.

This could work out for everyone (except probably Ferguson)

Comedy Central has the biggest challenge ahead. It not only has to replace Colbert in a year it lost the obvious choice in Oliver, it has to find a show that works well with the smart/liberal tone of The Daily Show. The likely choice would be to tap one of the Daily Show correspondents. None appear as obvious choices but perhaps longtime cast member Samantha Bee could fill the role. Or maybe an oddball pick from The Daily Show family could have the network tap former correspondent Olivia Munn, who hosted G4's Attack of the Show for years and has shown on HBO's The Newsroom that she can do smart as well as sexy.

CBS has less risk and more opportunity as Ferguson -- who will almost definitely be shown the door -- is already lagging behind NBC's brand new Late Night with Seth Meyers. The network is rumored to have been talking with departing E! host Handler (though those same rumors say she wanted the 11:30 p.m. slot), who would be a daring choice. Handler would have to show she could break out of her audience niche, but at 12:30 a.m. there is room to experiment and Handler would stand out in what is otherwise a boys-only club.

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