• by Erik Sass  @eriksass1, November 5, 2010

In 2005 Howard Stern became the highest-paid radio personality in history with a $500 million, five-year contract with Sirius Satellite Radio. But the future of this partnership is in doubt, as a post-merger Sirius XM reexamines its financial priorities and Stern is tempted by the bigger audiences offered by broadcast platforms.

While extravagant, the unprecedented deal between Sirius and Stern (signed in October 2004) was widely credited with helping jump-start the satcaster's subscription base, which soared from 1.14 million subscribers in December 2004 to 6 million subscribers in December 2007 -- a 420% increase in just three years.

In September, CEO Mel Karmazin expressed optimism that Sirius XM would be able to renew its deal with Stern. But on Thursday, Sirius XM shares fell 6.4% to close at $1.47 after CEO Mel Karmazin said there was no news on the progress of Howard Stern's contract talks. All he said was: "discussions continue."

Karmazin also praised Stern as "a great partner," but noted the strong draw of the satcaster's 130 channels of content in addition to Stern.

For his part, Stern has made a number of somewhat contradictory statements about his intentions, musing about what he might do if he leaves Sirius XM. In September, he stated that he would like to work less than his current schedule of four days a week, 39 weeks per year.

The financial world also appears divided on the issue of Stern's value to Sirius XM. Some financial analysts have suggested that Sirius XM might actually be better off not spending $100 million per year to retain the shock jock's high-profile talent. (That figure covers all the expenses associated with his show, not just his salary.)

Others still feel he is a major asset, buttressing subscriber loyalty. On Thursday, a Maxim Group analyst told Reuters: "The fact they didn't announce anything on Howard was a disappointment, given how much the stock had run."

Overall, investors have reason to be pleased with the satcaster.

Sirius XM had 19.8 million subscribers in the third quarter, and expects to see its combined subscriber base grow 6.9% to 20.1 million at the end of this year, according to Karmazin. One of the most important measures of its financial health and viability, the average cost per acquisition of a new subscriber, fell 14% from $68.60 in the third quarter of 2009 to $59 this year. Average revenue per subscriber increased 6% from $11.09 to $11.81.