How Mexico’s YO Telco puts a new spin on music/telco partnerships
It might seem a bit outdated or far from the “cutting edge” of technology, but telco companies are becoming more relevant than ever as partners in shaping new kinds of fan experiences for the music industry.
Put simply, the future of music streaming is the future of mobile data. The core music streaming experience, especially with capabilities like on-the-go listening and offline downloads, relies on having wireless broadband access, which is still not available for nearly half of the world’s population. Hence integrations with telco brands have comprised an essential part of the international growth strategy for “pure-play” audio streaming platforms like Spotify and Deezer, especially in Asia, Latin America and Africa, where consumers are accustomed to paying for entertainment as a discounted bundle with their mobile data plans.
But telcos don’t only have to integrate with outside music or entertainment services; they can also create their own.
In this vein, a new model for music/telco partnerships is playing out in real time in Mexico with YO Telco, a mobile virtual network operator (MVNO) that launched in September 2020 and might be one of the first companies in its category to try to monetize music fandom directly through its own mobile phone service. Counting Cliff Burnstein (manager of Red Hot Chili Peppers and Metallica) among its investors, YO hopes to use its exclusive entertainment offerings to cater to niche and underserved music communities in Mexico, while promoting values of diversity and equal opportunity in society. The decision to highlight music makes sense for a country like Mexico that ranks among the top 15 music streaming markets in the world, with 20 million music streaming customers and counting.
YO is already collaborating with Sony Music and Red Bull Music on brand activations, and recently announced an offer of one free year for the first 10,000 subscribers who transfer their phone numbers to YO by the end of this year. But heated competition from legacy telcos and a somewhat misdirected rollout strategy might stifle the upstart’s aggressive growth plans — and offer a lesson for artists looking to partner with similar companies elsewhere around the world.
MVNO market overview: An emerging, crowded landscape
Let’s step back and look at the MVNO market as a whole. In summary, an MVNO is a phone company that does not run on its own wireless network infrastructure, but rather rents space on the existing networks of established telcos like AT&T, Verizon, Sprint and T-Mobile. The first company of this kind was Virgin Mobile, which launched in the UK in 1999; the playing field has become much more competitive since then, with hundreds of MVNO options now available globally. Some of the top examples of MVNOs in the US today include Metro (acquired by T-Mobile in 2013), Straight Talk, Google Fi and Mint Mobile (which counts Ryan Gosling as an owner).
As a category, MVNOs still command only around 10% of the mobile phone subscription market, and the local share varies widely from one country to the next. For instance, in Oman, MVNOs command a 20% share of the mobile telco market, while in Mexico that share has yet to surpass 2%, with incumbents like Telcel, Telefónica and AT&T ranking far ahead. That said, there are currently over 20 MVNOs in Mexico — at least seven of which launched in 2020 alone — and the number of MVNO subscribers in the country is expected to grow by between 13% and 16% annually in the coming years.
MVNOs are typically known for having cheaper data plans that cater to more niche, rural and/or price-sensitive markets, as well as for offering steeper discounts on certain services like international calls and roaming charges. Occasionally, they will also pursue physical retail integrations; for instance, 7 Eleven’s MVNO Speak Out Wireless rewards customer spending at 7-Eleven stores with monetary credits towards their data plans.
It’s not common for MVNOs to place music at the center of their value proposition — but there are a few exceptions that have helped pave the way for the introduction of a service like YO Telco. Rok Mobile, a US-based MVNO that launched in 2014, offered a music streaming service with over 20 million tracks. Their particular music-centric bet didn’t pay off (likely because of timing, amidst the rise of competing services like Spotify and Apple Music), and Rok ultimately pivoted in 2018 to focus on lifestyle benefits such as telemedicine and pharmacy deals; the service shut down the same year.
Virgin Mobile also launched in Mexico in 2014 with a marketing strategy focused around music to attract young customers. By 2016, the company introduced partnership deals with DSPs like Apple Music, Google Play Music, SoundCloud, Grooveshark, 8tracks, last.fm and Deezer that allowed customers to stream music without being charged for data usage.
Unlike Rok Mobile in the US, Virgin Mobile quickly became the biggest player of its kind in Mexico — controlling more than 60% of the local MVNO market up until 2017, when it started to lose significant ground against new contestants like Freedom Pop and Pillofon, the latter of which was founded by Luisito Comunica, one of Mexico’s biggest YouTubers. Currently, Virgin Mobile’s market share in Mexico is only at around 7%.
YO Telco’s pitch: Pay for your mobile data with entertainment
Expanding on the foundations of Virgin Mobile and Rok Mobile, YO Telco is incorporating music and entertainment programming more directly into its own app, instead of relying solely on tech integrations with third-party services. Formerly known as Weex Mobile, the company was acquired by New York-based telco firm Yonder Media Mobile in August 2019 and relaunched as YO this year, with the goal of “seamlessly merging the worlds of telecommunications and entertainment together,” according to their website.
Yo offers mobile plans like any other MVNO, at a price point of 130 to 185 pesos (~US$6.50 to $9.20) per month, which is much lower than what Virgin Mobile offers (250 MXN/month) but not as cheap as Freedom Pop (100 MXN/month) or Pillofon (149 MXN/month). But beyond these plans, YO’s primary user experience is in the form of a free, multifunctional entertainment app spanning linear radio stations, classic movies, on-demand short videos and livestreams, addressing topics like music, comedy, food, memes and even skater culture. This is a significantly different approach from other MVNOs because YO does not offer any third-party streaming integrations, in the same way that Virgin Mobile currently does with Spotify, Apple Music or Deezer. When YO does offer licensed music listening, it’s in a linear radio format where users cannot go back and forth between songs or podcasts, or even skip ahead within them.
Yonder Music’s founder and director Adam Kidron has mentioned in several interviews that before the end of the year, the YO app will include a “battle bubbles” feature, in which users will be able to upload their own videos to participate in dance and rap battles (similar to some existing standalone apps like RapChat). YO users with local SIM cards in Mexico are rewarded for their time consuming this entertainment with an in-app currency (known as YOYO$) that can be exchanged for additional gigabytes on their data plans.
On the whole, YO Telco’s content and communication strategies are focused on street culture and relatively marginalized topics in the mainstream media, such as drug legalization, sexual exploration and LGBTQ+ issues. This is a significant difference from competitors like Freedom Pop or Virgin Mobile, neither of whom are nearly as specific in defining their audience by their cultural tastes and values. That said, Yo’s content still feels a bit broad in scope, especially when you see vastly different cultural poles boxed together within the same app, from the mostly macho-themed freestyle rap community to the LGBTQ+ underground reggaeton scene. We can assume that this is because the company is still testing which communities to focus its service on.
Interestingly, the YO app also features two flagship branded video series. One, titled Yo Rimo x Red Bull, features several of the MCs that have participated in Red Bull’s freestyle rap competition Batalla de los Gallos. The other, Joyitas x Sony, features exclusive content like interviews and acoustic performances from select Sony Music artists such as Little Jesus and Selene. Unlike other services like Spotify and YouTube, YO does not interrupt content on its free tier with advertising; instead, users experience non-intrusive branded content as part of the core experience, implying that Yo’s business model has a strong focus on sponsorships as a revenue stream. This might open up the possibility for the company to offer even lower prices to subscribers, as it attracts larger audiences that make sponsored content more profitable.
Challenges and opportunities: The importance of honest, targeted audience development
To make a difference in the music industry, YO Telco would have to incentivize artists and labels to upload exclusive content to its platform. In its current form, the YO app pays a blanket license fee for streaming non-exclusive content, which doesn’t solve the issue discussed earlier of monetizing fandom directly as opposed to merely giving artists exposure for pennies.
YO could be more successful in attracting exclusive content from artists and labels if it homes in on specific communities that are underserved elsewhere. For instance, it could become a go-to platform for Mexico’s underground freestyle rap community, especially considering the relative lack of coverage of the genre on FM radio and the app’s future implementation of “bubbles” for rap battles.
However, for all of this to work, YO needs to survive long enough in the market and continue growing its audience numbers, which won’t be easy. Despite its vast entertainment options and a relatively cheap pricing plan, YO Telco is currently not in the top 100 free Utilities apps in the iOS App Store in Mexico. (AT&T and Telcel are both in the top 15 in the same category.)
Local competition aside, one clear factor that puts Yo’s survival chances at risk lies in its launch campaign, which was arguably directed at the wrong audience. The campaign was divided into two parts. One was a red-carpet event that involved some of Mexico’s top social-media and entertainment influencers, including freestyle rapper MC Aczino (3 million followers on instagram) and TikTok sensation Kunno (15 million followers on Tik Tok and 1 million on Instagram). Aczino, who also leads the “Yo Rimo x Red Bull” series in the YO app, promoted the launch via a couple of posts on his Instagram page, but there are no traces of any social media posts about the event from Kunno. This suggests that the latter was probably hired to attend the event, but not paid enough to promote it on his own platforms; it also highlights the challenge of using influencers in telco marketing campaigns to drive actual conversions, versus just to give the app some level of cultural credibility.
The second part of the launch campaign involved the deployment of guerilla-type posters, some with SIM cards attached to them, on the walls of different streets across Mexico City. The main shortcoming is that most of these posters appeared around uptown parts of the city such as Condesa and Roma (a local equivalent to New York City’s Williamsburg neighborhood), instead of more peripheral areas of the city where most of YO’s low-income target audience might actually live. Given that Mexico City suffers from extreme income inequality, reaching out to the city’s margins should be a crucial measure in the marketing plan for any local MVNO, especially in the middle of a pandemic with limited travel.
With all this said, even if YO fails to survive in Mexico in the long run, it creates the precedent of a new model for MVNOs to capitalize directly on music fandom that could work well in several other markets around the world.
For instance, an MVNO with exclusive content offerings could be an attractive business for YouTube-native music brands such as Brazil’s KondZilla, which focuses on baile funk and owns the most-followed YouTube channel in Latin America with over 62 million subscribers. As Water & Music covered earlier this year, KondZilla has expanded far beyond YouTube alone into a full-fledged media and consumer brand — creating its own docuseries for Netflix, launching its own accessories brand and signing distribution deals with The Orchard and OneRPM and a global admin deal with Universal Music Publishing Group.
KondZilla could potentially port its highly engaged audience over to a content-centric MVNO service like YO, either through a joint venture or in partnership with a white-labeled B2B service provider. This can be especially attractive considering that many followers of baile funk come from low-income favelas, and would better understand the value proposition of consuming music and video content in exchange for lower phone bills.
We can also transfer a similar idea to the K-pop industry. This past summer, BTS staged a ticketed concert livestream called Bang Bang Con that generated over US$20 million in revenue. Everything related to this performance, including ticketing, video hosting and merch sales, were processed exclusively via Weverse, a mobile app owned by BTS’ management company Big Hit Entertainment. If Big Hit wanted to enter the MVNO market, it could link Weverse relatively easily to a mobile network, just as YO links its content app with its mobile subscription service (and BTS’ existing partnership with Samsung would make this expansion even smoother).
All in all, YO Telco shows how MVNOs and other telco brands can take a page out of the playbook of a growing number of DSPs like Spotify and Apple Music — evolving not just into the pipes for entertainment, but also into the exclusive content providers themselves. This shift poses a unique opportunity to artists and labels in terms of reaching out to historically underserved or marginalized demographics in mainstream culture, and presents a compelling vision for integrated collaborations between music and communications companies. As long as they approach audience development in the right way, these kinds of partnerships can amplify new cultural trends and broaden access to Internet and broadband services in one fell swoop.