In order to understand the business evolution of digital antenna maker Mohu, it helps to examine a product the company did not successfully launch.
Flat, flexible and sandwiched between two pieces of vulcanized rubber, the antenna bears no resemblance to any conventional antenna – digital or analog. It looks like a mud flap and it can function as one. But on a military vehicle, the antenna mud flap would offer high-functioning capabilities in an unobtrusive, low-profile design. The military did not pick up the product. But that research into flat, flexible antennas paved the way for the Raleigh company to develop comparable antennas for consumers.
In consumer electronics, Mohu competes against technology giants such as General Electric (NYSE:GE) and RCA. Mohu founder and CEO Mark Buff is comfortable being an electronics David facing technology goliaths. The company got its start going head to head for military funds against large, well-financed military contractors such as ITT (NYSE:ITT) and Northrop Grumman (NYSE:NOC).
“Everything that we did had to be exceptional or we would not continue to be awarded additional follow on contracts,” Buff said.
Mohu’s flagship digital television antenna is the Leaf. Lightweight and paper thin, the antenna is designed to be out of sight and out of mind – just like an antenna on a military vehicle. The Leaf has steadily built a consumer following and it has made Mohu an HDTV antenna leader. But that’s not what Buff was initially trying to do.
Mohu’s origins come from Buff’s graduate work at N.C. State University. Buff was researching ways to counter improvised explosive devices, or IEDs. That antenna research involved low-profile or no-profile antennas designed for armored military vehicles that could block signals used to detonate roadside bombs.
Even as Buff researched antenna technologies under military contracts, he thought the technology also had consumer applications. His research coincided with the 2009 transition of television broadcast signals from analog to digital. Buff and some colleagues went to Best Buy to purchase several of the digital antennas commercially available at the time. Back at the office, they broke them apart for a closer look at the designs. That’s when Buff realized the antenna technology he was researching for the military could work better. Buff declined to describe in detail Mohu’s proprietary technology other than to say the “secret sauce” is a more high-powered design compared its consumer electronics counterparts. Buff started his company in 2009. The Leaf launched two years later.
Technology made the Leaf possible. But market changes make the digital antenna market viable. Buff points to rising pay-TV subscription prices as the reason consumers leave cable and satellite providers. Time Warner Cable (NYSE:TWC), North Carolina’s largest cable provider, generates $105 in average revenue per customer per month; $72.99 on average coming from video services. In 2010, Time Warner’s average video revenue per subscriber was $70.46.
In industry parlance, subscribers who cancel their cable or satellite services are “cutting the cord.” Time Warner lost 306,000 video customers in the third quarter, the company reported. While the company attributed that decline to contractual disputes with CBS and Journal Communications, subscriber losses are part of the trend for all pay television providers. As an industry, cable providers lost 687,000 subscribers in the quarter, a wider loss compared to same period in 2013 and a steep enough loss to prompt veteran media analysts Craig Moffett and Michael Nathanson to write in a November report: “The pay-TV industry has reported its worst 12-month stretch ever.”
Some “cord cutters” watch television programs over the Internet via services such as Netflix and Hulu. That’s fine by Mohu. Internet video complements rather than competes with Mohu antennas, Buff said. Of the top 100 most popular television programs, 96 are broadcast over the air. Digital antennas allow users view those programs for free. In fact, most Mohu customers fulfill their viewing needs by combining Mohu antennas with other devices such as Roku or a gaming console.
Low profile and unobtrusive
Nestled among other North Raleigh commercial properties, Mohu’s headquarters are low profile and unobtrusive – just like the company’s antennas. Those antennas are U.S. made. In fact, all Mohu antenna work, from R&D through fulfillment, happens at the Raleigh site.
The name “Mohu” has no meaning; Buff and his colleagues thought it sounded like a fit with video services such as Hulu and Roku. The company that consumers know as Mohu is actually a division of Greenwave Scientific, the company Buff founded in 2009. Mohu is the consumer electronics brand while Greenwave focuses exclusively on research funded by military contracts.
Buff is guarded about his privately-held company’s financials. While Buff acknowledged Mohu is profitable, he declined to provide any revenue figures. But the company is growing. When Mohu launched the Leaf in In 2011, Greenwave employed just five. Now the company’s headcount is close to 80. Greenwave has never raised money from investors though Buff now says outside investment is in the mix of options to finance Mohu’s growth.
Consumers can find Mohu antennas at WalMart and Sam’s Club stores. Buff said he’s also in talks with “other major retailers” about stocking Mohu antennas. But Buff attributes Mohu’s rise to sales on Amazon.com. With 4,650 reviews, the Leaf has three times as many reviews as its closest competitor. Those reviews and word of mouth helped propel Leaf sales early on and it continues to be the top-selling HDTV antenna on Amazon.
Mohu’s early years were spent developing an antenna that would be difficult to spot; its thin, flat design was intended to be hidden underneath a shelf or behind a picture frame. But Mohu has taken a different tack with its latest product, the Mohu Curve. Industrial designers developed an antenna that functions the same as the Leaf with an appearance that catches the eye while on display on a bookcase or a credenza. The product was a response to customer feedback seeking an antenna that looks better in the home.
“When design becomes important, that’s a sign that something is becoming mainstream,” Buff said.
It’a premature to call digital antennas mainstream. Just 7 percent of U.S. households rely solely on an antenna for their television programming, according to the Consumer Electronics Association. The vast majority of households – 83 percent – still get their television programming from pay-TV services. But Buff views that figure as a growth opportunity.
Beyond expanding Mohu sales through additional retailers, Buff says Mohu will grow by adding to its portfolio of indoor and outdoor antennas. Research is underway to integrate content that is broadcast over the air with content from the Internet on services such as Netflix or Hulu. The product has no name yet. Buff calls it a “smart antenna.”
Greenwave Scientific still does military work. But that work has scaled back due to military budget cuts and so far Greenwave does not yet have any of its antennas on military vehicles, Buff said. Right now, the consumer division drives the company’s growth as technology initially conceived as a military tool finds its way into American living rooms.