What's surprised investors is how steadily Starz can generate healthy profits and cash flow even as it waits for a breakthrough hit. Last Friday, the company reported $117 million in earnings before interest, taxes, depreciation and amortization for the fourth quarter, well above consensus the estimate of $107.7 million.
One of Starz's main advantages is the structure of its agreements with cable and satellite operators. Most of those deals are essentially fixed-rate with annual step-ups that occur regardless of how many people subscribe to Starz. Starz's main network division will likely see a 4 percent rise in revenue in 2014 excluding exceptional items, estimates Vasily Karasyov, an analyst with Sterne Agee.
Of course, such fixed-rate deals can preclude Starz from seeing a direct benefit in subscriber growth. HBO and Showtime tend to have more deals that depend on how many people subscribe to their networks.
But fixed-rate deals probably make more sense for Starz while it invests in potentially risky original programming. Such arrangements give cable companies an incentive to sell subscriptions because they keep all of the revenue. That has probably helped Starz hold up against traditional rivals as well as newcomers like Netflix and Hulu. Indeed, Starz added 1 million subscribers in 2013, bringing the network to 22.2 million, just shy of Showtime and not too far from HBO's 28 million.
Starz has also managed programming and marketing costs prudently, even as it rolls out content to catch up with rivals. The company's key networks division had an ebitda margin of 35.2 percent in 2013, not far from 36.4 percent for HBO.
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Starz's conservatism should allow it to direct cash more toward shareholder friendly buybacks. The company already repurchased 10.5 percent of its shares since the spinoff in January 2013 at a cost of $325.5 million. Last Friday, it authorized a further $400 million buyback program.
In an interview with CNBC Digital, Starz CEO Chris Albrecht said the company could potentially offer its content in the U.S. through a digital service separate from a cable or satellite channel. "There are some new entrants," he said. "There are ways to expand in the U.S., for sure."
Starz may have an easier time striking such a deal than Time Warner or CBS because it is an independent channel. Media conglomerates tend to negotiate favorable deals by bundling a large number of channels and would risk upsetting cable companies if they made their content available elsewhere.
All that suggests investors can afford to wait awhile before getting nervous about Starz's originals. The channel will continue to air Walt Disney movies through theatrical release dates in 2015, and it has locked in Sony movies through theatrical release in 2021.
If Starz can get eventually produce a must-see hit, the company is well-positioned to take advantage of it. In addition to the Starz channel, it has 34.9 million other viewers on the Encore channel where it can market and potentially air its originals.
And Starz has already found ways to cash in on its shows overseas. In January, Starz sold broadcasting rights for "Black Sails" and other originals to Russian production company Amedia, which airs content across Russia and Eastern Europe. On top of getting cash to cover its programming costs, such success overseas suggests a foreign media company could buy Starz outright or partner to create a Netflix-like service with Starz content.
Starz trades at 14.9 times consensus forward earnings, which should grow at a mid-to-high single digit percentage pace this year even without a megahit original series. Netflix, trading at 100 times forward earnings, looks much more vulnerable to a misstep. While Starz doesn't look as flashy, it could easily provide shareholders with more entertainment.
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—By CNBC's John Jannarone. Follow him on Twitter