It is a bug: BUG-000082168. Will be fixed in Desktop 10.4. Until that you can create the TPK with just area of interest (using tools manage tile cache and Export tile cache) in you local PC and the TPK you can publish to AGOL.
Will any of the similar bugs I logged be fixed in 10.4? Thanks
[BUG-000086429: The Manage Tile Cache tool does not honor the area of interest parameter set when creating the cache.] I have 2 out there now that say only 3.63% of the tiles published but it actually works just fine. Case #01691221 and #01642593
[BUG-000085241: Publishing tiles does not complete in ArcGIS Online. This may be due to incorrect extents, however this warning is never provided to the user when creating the tile package.]
Unknown number - the extent is also wrong when using the Export Tile cache tool. They listed BUG-000085241 but this is already above and different. I had case #01642593 and #01623834 because the export tool also bombs in scheduled scripts but works fine not scheduled.
BUG-000084160 The Manage Tile Cache tool will fail when run in python. I was trying to get around the bug above and found another one.