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EXCLUSIVE -- CBS and David Letterman Discussing New Deal

Related: Daily Show's Jon Stewart Signs Comedy Central Extension

CBS and David Letterman have begun discussing a new deal to keep the Late Show host on the network beyond 2010, according to sources with knowledge of the early talks.

The two sides are striking up talks as the 11:30 timeslot is about to undergo a sea change with Conan O'Brien taking over The Tonight Show and Jay Leno deciding not to jump to ABC and compete for those viewers.

Both CBS and Letterman could see that as an opportunity for Letterman to pick up some new eyeballs and potentially take over as the top host in late night with Leno out of the picture, as he moves on to start his 10 pm show on NBC.

Letterman is currently working under the terms of a four-year deal announced in 2006 that goes until August of 2010. Letterman's current salary is believed to be well over $30 million per year.

There had been previous questions about Letterman's intent to continue beyond that 2010 date, with The Daily Show star Jon Stewart considered a possible replacement for Letterman if CBS and Letterman decided to part ways. CBS also has another late night asset in 12:30 host Craig Ferguson.

In an interview last year with Rolling Stone magazine, Letterman indicated he may want to sign one more deal.

"The way I feel now, I would like to go beyond 2010, not much beyond, but you know, enough to go beyond. You always like to be able to excuse yourself on your own terms," he said. "If the network is happy with that, great. If they wanna make a change in 2010, you know, I'm fine with that, too."
If Letterman stays, he will be competing with O'Brien and ABC's Nightline at 11:30 on the broadcast networks. ABC's entertainment division has long wanted to supplant Nightline, either with Leno or Jimmy Kimmel, but network execs maintain that is not in the immediate future.

And while Fox would like to jump into the weeknight fight, it has yet to find the right play, a decision which would be even tougher given the challenging economy and the fact that the late night advertising market was showing weakness even prior to the recession firmly taking hold. Fox instead is continuing to just concentrate on Saturday nights for late night, giving Spike Feresten the 11 p.m. time slot formerly occupied by sketch comedy Mad TV

Spokespersons for both CBS and Letterman declined to comment for this story.