Several possibilities, and the decision was probably predicated on a mix of them:
1) Fox might have had trouble getting affiliates lined-up. The new Conan show seems like a sure-fire idea, but the memory of Chevy Chase still haunts the joint, and local stations might be queasy at the idea of taking on such a huge show lest it blow up again.
Adding to this was the fact that many of these stations had already paid for programming for that slot, and would have to eat those charges aside from kicking Fox money for O’Brien’s new show. Some affiliates might have locked in programming, meaning O’Brien’s show would play in some markets an hour later. Probably things could have been worked out eventually, but you can’t blame Conan for going with the guys who were ready to go.
2) Going to cable lowers expectations. O’Brien will probably do pretty well, but by not competing directly with three different network hosts, he has a bit of a built-in excuse if he comes in third (likely) or even fourth place.
A lot of O’Brien fans would pooh-pooh that idea, but even with all the bad publicity Leno took, the fact remains that he’s the biggest guy in late night. Per one report, “In March, Leno outdrew his main rival on CBS, The Late Show with David Letterman, averaging 4.9 million viewers compared with Letterman’s 3.7 million… ‘After a couple of early Letterman victories among young adults, Leno has taken a firm lead among total viewers and adults 18-49, and Letterman has lost virtually all the gains he made in Leno’s absence,’ Media Life Magazine wrote in response to the ratings report.” And Leno’s been back on the air for, what, two months?
For all the (comparative) hipster swagger of Letterman, Leno has already retaken the lead from him not only in total viewers (and by a pretty big margin) but in the prime 18-49 demographic. Possibly Letterman does better in the younger end of that scale, but I’m sure he’s not killing Leno as much as people think. The median age of the viewers of both shows is now 56.
That’s why Kimmel is still on the air, even with his much smaller audience, and why ABC didn’t rush to dump him when O’Brien became available. O’Brien might well have done better than Kimmel, but probably not by a whole lot, and maybe not much at all. Plus, it’s unlikely that given the dynamics of the NBC situation that O’Brien would have been comfortable taking a slot away from somebody else.
But back to the big guys. Largely overlooked by O’Brien partisans (with whom I have some sympathy) is the fact that Conan’s Tonight Show ratings kind of sucked. There are many reasons why this might be so, but you can’t ignore the possibility that O’Brien remains a niche guy. In any case, going on Fox and getting absolutely creamed by Leno, which is most probably what would have happened (Letterman and Kimmel are obviously more vulnerable to losing viewers to a Conan show), must not have struck O’Brien as a particularly attractive option.
3) More freedom on cable: There’s little doubt that Conan will be able to get away with more stuff on TBS than Fox. While I personally think he was already kind of pushing the edge with stuff like the Masturbating Bear already, who knows, maybe he wants to go a lot farther. TBS will let him.
4) Maybe TBS threw more money at him, and/or offered him a longer guaranteed contract.
5) Perhaps the game changer (or the biggest face-saver) is that TBS offered O’Brien ownership of the show. That means that O’Brien can monetize the show directly (home video, downloads, etc.), and also own any new characters he creates. Weirder things have happened than a talk show comedy character having a movie or a TV series built around it.
6) It increases the chance that O’Brien will be able to play a character in any future Captain Planet series.