Maritime satellite communications hardware and services provider KVH Industries said ground upgrades to its network have more than doubled its forward-link throughput capacity, meaning it will not need new satellite bandwidth to accommodate its newest acquisition, Headland Media Ltd. of Britain.
Middletown, R.I.-based KVH said integrating the news, sports, music and entertainment that Headland provides to its mainly maritime customer base should ultimately get KVH’s foot in the door of maritime customers that currently are Headland customers but do not use KVH.
The purchase is an example of the growing competition among satellite service providers and hardware builders for maritime business, whether it is government, commercial shipping or leisure in nature.
In a May 13 conference call with investors, KVH Chief Executive Martin Kits van Heyningen said the company would adopt a “Trojan dome” strategy in offering discounted services to Headland customers to show them what KVH’s shipboard terminals and services could do.
Similarly, he said, KVH will be able to extend Headland’s reach beyond its base in Europe and into Asia.
KVH is paying $24 million in cash for Headland, about double the company’s 2012 revenue and between seven and eight times its 2012 earnings before interest, taxes, depreciation and amortization, or EBITDA. The purchase is being made from a recently expanded bank facility that KVH had negotiated before the acquisition despite the nearly $45 million in cash on KVH’s books as of March 31.
Kits van Heyningen said maintaining a relatively large store of cash will be useful in the event other acquisitions should surface.
Headland currently uses some KVH gear but otherwise is a customer of KVH competitorof London for relatively low-volume data transmissions to and from Headland’s maritime customers. Headland currently provides the service, including digital newspapers that Headland tailors to its audiences, to 9,600 ships.
The company also provides similar news and entertainment services to 1,700 hotels and other retail outlets, but nearly three-quarters of its revenue is in the maritime sector.
Kits van Heyningen said new maritime regulations and the most recent Maritime Labor Convention call for ship owners to provide better living conditions for their crews, a mandate that includes access to the Internet and to entertainment.
Because it violates cinema copyright for seamen to bring their own DVDs aboard for crew entertainment — that would be considered as nonprivate, commercial use — Headland is forced to ship DVDs to its customers’ ports of call in time for pickup after obtaining digital rights from movie studios. When dealing with dozens of ships at any given time, this is logistically difficult.
“The days of mailing DVDs around the world are numbered,” Kits van Heyningen said.
When added to the music, news and other digital files Headland provides, the monthly data load is measured in hundreds of gigabytes — too heavy for narrowband maritime satellite links.
It might also be cumbersome for KVH without additional satellite capacity or without crowding its existing customers by pushing the Headland services through KVH’s current leased bandwidth. But Kits van Heyningen said the company’s recent investment in advanced coding and modulation technology has more than doubled the amount of data that KVH can send to its customers.
The result, he said, is that KVH’s new multicast service of sending the same files to multiple ships at the same time can accommodate cinema and the other Headland offerings as a “background” delivery that will not break users’ Internet connections. There will be no need to lease additional satellite bandwidth to add the Headland service to KVH’s portfolio, he said.
“This will have zero impact on Internet data rates, and I mean literally zero,” Kits van Heyningen said. “We currently have unused capacity and the ability to schedule our multicasting and the other deliveries to be sent when idle time is available on our network.”
KVH has a 10-year technology partnership with satellite broadband services and hardware provider ViaSat Inc. of Carlsbad, Calif.
KVH Chief Financial Officer Peter Rendall said the Headland acquisition would be accretive to KVH’s earnings this year, and that the service over KVH’s network should be ready for trials this summer, with commercial rollout later this year.