Well, Leno's prime time show was horrible. What HORRIBLE skits. And Conan wasn't very good in Tonight. But I only watched them a few times.
Overall it's a kick in the crotch to Conan.
The story I heard at the time was NBC wanted to get Leno out of Tonight before he retired. But then why give him another show?
I also remember Letterman saying he would retire at 50. Ha.
I posted the full story on page one. It will answer your question
Edit: Here is short story of the whole situation. I posted this a few days ago
It started when Conan's contract was coming to an end. Fox was extremely interested in conan because their weekly schedule is based on reruns of simpsons and married with children (now tmz), and offered him millions of dollars. ABC wanted to fire jimmy kimmel, and they offered conan money as well, so he can replace the jimmy kimmel show. Basically fox and abc were in the head running.( A cable channel wanted conan as well but gave up during negotiations, but a few years later they ended up with george lopez. Fox has wanda sykes now.)
NBC got scared of the thought of having conan compete with jay leno in the ratings, and didnt want jay to be out done with letterman and conan.
Conan is a huge fan of the tonight show, and it has been his dream to host it. On his old stage on the conan obrien show, he had pictures of past host of the tonight show.
NBC told leno that he will not receive another contract from nbc and it was time to retire because they wanted to keep conan since at the time he was the up and coming host or popular among young people
Leno had no other option but to agree or they wouldnt renew his contract at the time. Basically he was forced.
Throught the remaining months of the conan obrien show, craig fergusion was beating or coming close to conans ratings. Nbc got scared because if fergusion got that close to conans than letterman would slaughter him.
Fox, ABC, A FEW cable networks went after Jay Leno....Once again, the NBC panic and offered him a deal to stay with NBC, so they wouldnt have to worry about leno competing with conan for ratings. Leno stayed since he had history with the network.
Now, NBC was bought out by a new company aka comcast, and the new company is going to reorginize the network due to the mistakes the previous execs made.
I also heard, that Nbc is considering buying out conans contract and releasing him.