Stranger Things was the most-streamed series in the United States last year, but when it comes to the type of shows people watch most, they typically prefer something else.

Licensed programming made up the bulk of the top 15 series streamed across Netflix (NFLX 2.98%), Disney's (DIS -0.29%) Disney+, and other streaming services in 2022, according to data from Nielsen. Just four titles in the list were originals.

As Netflix shifts its focus to subscriber engagement, especially with the introduction of its ad-supported tier, licensed shows will play an important role in keeping subscribers from leaving for other services. Meanwhile, media companies that are more open to licensing some of their top content could benefit from lower supply and increased demand.

The value of licensed programming is going up

Despite strong results from a few original series, licensed programming remains one of the safest bets in winning viewer engagement.

Licensed series like Grey's Anatomy, NCIS, Criminal Minds, and Supernatural have over 300 episodes. What's more, those programs were created with broad audiences in mind, as they originally aired on broadcast television stations. Those two factors combine to result in hundreds of millions of hours of watch time for a streaming service like Netflix.

The influx of new streaming services since 2019 also means the number of bidders for licensed content is increasing. Additionally, the owners of those streaming services, big media companies, are less likely to license their content. We saw big hits like Friends and The Office, each once the most popular series on streaming, leave Netflix after their owners decided to keep those titles for their own streaming services.

It's no surprise, then, that Netflix is seeing the majority of its budget shift to original series and films. It's not because those are better at engaging audiences, but because Netflix cannot simply buy whatever content it wants anymore -- the company has to make it.

Despite nearly 50% of its budget going toward originals in 2022, less than 40% of its top 100 titles were originals, according to Ampere Analysis. And likely even less of its total watch time came from originals, since they have fewer episodes than most licensed series.

The growing demand for licensed series could benefit media companies that don't have much presence in the direct-to-consumer space. Sony (SONY 0.14%) and Fox (FOXA 1.12%) come to mind as two studios that could see an increase in licensing revenue over the next few years as streamers fight for rights. The latter recently signed a new deal with Hulu, which is controlled by Disney.

Originals still matter

All that said, investing in originals is still essential for any streaming service.

Originals are able to drive sign-ups for a streaming service, unlike licensed content. Few people are going to sign up for a streaming service to watch reruns of NCIS, even if they end up watching hundreds of hours of the various iterations of the series. They will, however, sign up for a streaming service to watch that new Addams Family series everyone's talking about.

As mentioned, there are fewer opportunities to license content from other media companies today than just a few years ago. As such, streamers should look to build their own long-running series with similar characteristics to the most popular licensed shows -- not every original needs to be prestige programming.

Netflix needs to invest heavily in original programming to draw in new subscribers and ensure it has enough content for all of its existing subscribers. But investors shouldn't be surprised if it pays a hefty premium for the content it's able to license. It provides a great way to round out the library, and it's a safe bet to produce strong engagement for the amount invested.