Jimmy Fallon’s high ratings pushed David Letterman to retire, source says

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David Letterman, 66, rattled the entertainment industry on Thursday when it was revealed that after more than 32 years and almost 6,000 episodes in the late-night arena, he will retire in 2015 when his CBS contract expires. According to a source closely connected to the “Late Show” host, newly appointed “Tonight Show” host Jimmy Fallon – his direct competition – inadvertently gave Letterman the final nudge.

“David is older now; he had heart surgery some time ago and sees both Jimmy Kimmel [of ABC’s “Jimmy Kimmel Live!”] as well as the more formidable Jimmy Fallon now gaining on him…” the insider told FOX411. “Fallon is getting record ratings so Letterman will segue out while he’s still on top. It’s dignified. If Fallon weren’t so hot, he might have stuck around longer.”

Jimmy Fallon’s arrival into the late night landscape, with its younger audience focus and heavy marketing campaign, pushed “The Tonight Show” well over rivals Letterman and Kimmel in the ratings rat race with the key demographic, 18-49. Since the change, Letterman has been averaging 2.85 million viewers, while Fallon is getting around 4.3 million an episode and Kimmel 2.7 million. However, Letterman’s legendary stance has still ensured he books the big names, and he recently shared the studio with the likes of Lady Gaga, Lindsay Lohan and former U.S. President Jimmy Carter.

The shock news of Letterman’s retirement plans instantly sparked murmurs of who will succeed the King of Late Night. We’re told no names have been set in stone; however one that is already floating is Craig Ferguson who hosts CBS’s “The Late Late Show,” which is produced by Letterman’s production company Worldwide Pants Incorporated.

TheWrap.com also noted that Letterman’s retirement could come back to haunt NBC given that the newly retired Jay Leno is a free agent who went out on top, and that Conan O’Brien will also be available to replace Letterman as he is in the fourth year of a five-year contract with TBS for his show “Conan.”

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“Leno would seem an especially bright prospect,” wrote Tim Malloy. “And CBS, with the oldest viewers in broadcast TV, may not be as fixated on youth as NBC was when it replaced Leno with Fallon.”

A month ago, Kimmel was asked by TV Guide magazine whether he would be interested in succeeding Letterman, and he didn't shoot down the idea.

"I'd definitely consider it," Kimmel said. "I am loyal to ABC and grateful to them for giving me a shot. I was a guy from 'The Man Show' when they put me on. I'm not looking to flee. But just getting a call from Dave would be big for me. So it's definitely something I would listen to.'"

E!’s Chelsea Handler also recently revealed that she will be moving away from the cable network when her contact expires, making her an interesting candidate for Letterman’s job.

Last October, Letterman signed a fresh two-year contract extension with CBS. When that has been completed, he will have spent 22 years as host of the iconic “The Late Show” with an additional 11 years as host of “Late Night,” surpassing Johnny Carson’s hosting record by three years.

Another well-placed industry source told us it was simply “time.”

“David is not that young anymore,” said the source. “And with Fallon and Kimmel also at 11: 30 p.m. now, CBS may be fearful of losing the young audience and want their own youthful appeal there.”

On that note, public relations experts praised CBS for its swift, surprise handling of the Letterman news – especially in the wake of NBC’s “Tonight Show” shakeup, which saw weeks of leaked press reports and speculation before an announcement was officially made.

“There is no question, David could have remained in this spot for a number of years,” said Ronn Torossian, CEO of New York-based firm 5WPR. “But releasing news this major ensures it will dominate the news cycle and was handled quietly, with a formal statement and in the right way.”

It has not yet been made clear exactly when next year Letterman will turn off his studio lights for the final time.

“I think it will be at least a year or so, but sometime in the not too distant future, 2015 for the love of God, in fact, Paul [Shaffer, band leader] and I will be wrapping things up,” the comedian told the audience during a taping of his program this week. “I want to reiterate my thanks for the support from the network, all of the people who have worked here, all of the people in the theater, all the people on the staff, everybody at home, thank you very much.”

And for CBS CEO Les Moonves, the occasion will be bittersweet.

“When Dave decided on a one-year extension of his most recent contract, we knew this day was getting closer, but that doesn’t make the moment any less poignant for us,” he stated. “It’s going to be tough to say goodbye.”

The Associated Press contributed to this report.