Small satellites deployed as a network in space have a significant advantage over conventional satellites because of their low entry barrier and the inherent capability of distributed multi-node systems. Several small satellites flying in a formation would collaboratively achieve the mission aim at lower cost and with enhanced reliability and efficiency compared to larger single platform mission. There is heavy research in the field of satellite data compression wherein, data is compressed onboard the satellite and then sent to the ground station for processing, while research on satellite constellation systems where we could further exploit the properties of multiple close satellites to achieve higher compression with the help of inter-satellite links is just beginning. This paper explores this topic further and we analyse how Earth Observation (EO) satellites in a low earth orbit (LEO) could exploit these properties further for higher compression gains over existing methods.