Why Is Stephen Colbert Making Soooo Much LESS Than His Fellow Late Night Hosts?

With Stephen Colbert officially making the highly anticipated leap from basic cable to network television, you would naturally assume his paycheck just received a massive upgrade. But in a surprising twist of Hollywood economics, the opposite is true.

As the host of Comedy Central's "The Colbert Report," Colbert was pulling down a healthy $6 million per year. Yet, as he takes over the desk at CBS's "The Late Show," Stephen Colbert's salary will be just $4.6 million.

Why would one of the sharpest names in comedy agree to a pay cut to take a bigger job? When you stack his contract against the rest of the late-night landscape, it looks like a raw deal.

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The Late-Night Salary Standings

Colbert is entering the broadcast arena at the bottom of the financial totem pole:

• Conan O'Brien salary: $12 million (TBS)
• Jimmy Fallon salary: $11 million (NBC)
• Jimmy Kimmel salary: $10 million (ABC)

Worse yet, he is making a fraction of what the titans before him commanded. His legendary predecessor, David Letterman, was making $30-$50 million a year to do the exact same job at CBS. Meanwhile, Colbert's old mentor, Jon Stewart, capped off his historic run at "The Daily Show" making an estimated $25 million before stepping down this past August.

Even adjusted historical figures dwarf Colbert's new contract; when Johnny Carson retired from "The Tonight Show" in 1992, he was earning $25 million a year—the equivalent of an astronomical $42 million today.

The Long-Game Strategy: The Conan Blueprint

So, why the discount? Colbert is playing the long game, following a strategy famously utilized by Conan O'Brien.

When Conan first took over "Late Night" on NBC, the network kept him on short, probationary 13-week contracts until he proved he could own the time slot. Once Conan established himself as an indispensable fixture, he went in for the kill and demanded top-tier money.

CBS is taking a similar wait-and-see approach. Launching a new iteration of "The Late Show" requires millions in upfront infrastructure and marketing costs. By accepting a lower base salary of $4.6 million on his initial three-year deal, Colbert lowers the network's risk while betting heavily on his own future performance.

What CBS is Counting On: The Youth Premium

The bigwigs at CBS are betting that Colbert will completely revitalize their late-night ad revenue by capturing a younger demographic.

Late-night ad spending is booming, up 14% over the past year to nearly $600 million across the broadcast networks. CBS desperately needs a piece of that growth. David Letterman's average viewer was 58.2 years old. By comparison, the average viewer of "The Colbert Report" was 42.3 years old—making it the youngest audience in all of late night.

Furthermore, Colbert is a digital juggernaut. A single late-2014 episode of "The Colbert Report" generated over 3.5 million online streaming views, easily tripling the show's live TV viewership for the same period. If Colbert can successfully migrate that young, digitally active audience over to CBS, the advertising dollars will follow.

The Verdict

With an estimated net worth of $45 million built on a highly decorated career—including multiple Emmy awards as a writer for "The Daily Show," best-selling books like "I Am America (And So Can You!)", and an elite improv pedigree from Second City—Stephen Colbert doesn't need to maximize his cash right now.

If he can successfully anchor "The Late Show" and beat out the Jimmies in the ratings, expect CBS to hand him a massive, record-breaking raise the exact second this current contract expires.