CBS has offered David Letterman $31.5 million a year to stay on as Late Show host, upping an offer ABC has reportedly made to get him to defect, a network source said.

Letterman, whose contract with CBS expires this year, would also receive performance bonuses and additional salary increases in future years, said the source, who spoke to The Associated Press on Wednesday on condition of anonymity.

Letterman reportedly earns $30 million a year for CBS, and ABC's offer is for $31 million. ABC also has offered Letterman his own studio in the network's Times Square complex in New York, according to Entertainment Weekly magazine. Word of the offer came to light last week.

Letterman, who has long been No. 2 behind NBC's Jay Leno in the late-night comic wars, has been unhappy with CBS' older prime-time audience and the weak local news programs on CBS affiliates leading in to his show. He has been at CBS since 1993.

In addition to his salary, Letterman reportedly receives substantial licensing fees, which offset production costs, under his current deal with CBS. The network also refurbished Times Square's Ed Sullivan Theater for him when he left NBC's Late Night to move to CBS.

Officials with Letterman's production company, Worldwide Pants, have declined to comment, saying it would be inappropriate to do so while they are in negotiations with CBS.

ABC executives thought they would close the deal at a meeting with Letterman in late February, but he hesitated and decided to consider the offer during his vacation, according to the Entertainment Weekly story, which is to appear in next week's edition. He is scheduled to return to CBS' Late Show next week.

ABC also offered to pick up the roughly $40 million annual production cost of Letterman's show if he jumps ship, according to Entertainment Weekly, which cited unidentified sources at ABC and CBS.

The magazine report is "totally inaccurate on all money points" and other aspects of the negotiations, an ABC source who spoke on condition of anonymity told the AP.

The Letterman battle has put the fate of ABC's 22-year-old news show Nightline in doubt and drawn angry criticism from its host, Ted Koppel.

Nightline began as a regular show in 1980 as an outgrowth of ABC's Iranian hostage crisis news coverage. Although it still regularly outdraws Letterman's Late Show, ABC executives are concerned Nightline doesn't reach the young viewers favored by advertisers.

According to The New York Times, Robert Iger, president of ABC's parent Walt Disney Co., told Koppel in a meeting Monday that if the network fails to win Letterman, ABC would move Nightline only for a top quality show.