NEW YORK (TheStreet) --Dish Network (DISH) wants its low-cost Internet-based Sling TV to become popular -- just not too popular.
Sling, which is set to begin service this month, has a curious deal with its largest content providers: It must limit its total subscribers to as few as 5 million, according to Macquarie Capital analyst Amy Yong who attended the Consumer Electronics Show in Las Vegas this week. The service was also likely watered down from its original conception, Yong said in an interview.
The cap isn't intended to be a hard number, simply a point at which Dish would probably stop promoting the service, Yong added. Dish wouldn't confirm or deny such a cap, and the media companies that will provide their networks to Sling TV were reluctant to discuss specific terms of their deals with Dish.
Caps are not uncommon with smaller packages as larger media companies such as CBS fear cutting into the fees they receive from pay-TV providers such as Comcast (CMCSA) , Time Warner Cable (TWC) and Verizon (VZ) . The networks don't want to jeopardize the bulk of their profit for the sake of Internet-based services even as they recognize that's where younger viewers are increasingly going for video.
"A lot of these smaller packages have caps," said Tom Eagan, an analyst with the Telsey Advisory Group. "The networks would want these caps because they're assuming (and probably rightly so) that after the cap, the [subscriber] growth would cannibalize" the pay-TV base.
In November, Dish Chairman Charlie Ergen said he expected Dish would charge $30 a month for the service, as opposed to the $20-a-month basic plan the Englewood, Colorado-based pay-TV operator announced this week. Dish is also offering select add-on packages for an additional $5 per month. On Thursday, Dish officials declined to say why it shifted to a cheaper service or say what channels, if any, were scrapped as part of the decision to go with a lower price.
If Sling TV can attract 1-2 million subscribers within a year, that "could open the flood gates for other players" to enter the over-the-top arena with similar services, Yong added.
But some pay-TV operators may be "reluctant" to chase the same millennial demographic that Sling TV is targeting because of the "historically high-churn characteristics" of younger consumers, she said using an industry term for turnover. "If the services gain little traction, we think this will be further proof that even larger players like Dish may find it difficult to go skinny," Yong said, noting that there are only 12 channels in the basic Sling TV plan.
"It's limited probably because some content owners did not want to have [Sling TV] widely distributed," Yong said. "This is a $20 product, so it's not talking about a lot of money here. [The networks] are dipping their toe in the water because the world is moving in that direction, but you want to be careful" with the new over-the-top services.