I dunno about that, CDs are a much simpler medium than cartridges which was the main reason they could be produced so much more cheaply.
At any rate, I think the 4th gen showed third parties were willing to stick with Nintendo even when there was a competitive alternative. Nintendo simply gave them no choice but to leave by only offering an expensive medium that couldn't really support the games they were making.
From what I know at the time to setup a production "floor" for CD was expensive, the CD drive on the console was also expensive, but after that to print CD was cheap and piracy were hardly expected because of the cost to regular people to have CD burner PCs.
Just look that Atari and to a smaller degree NES had non authorized SW release, SNES was also prone to piracy of the cartridges, but I don't know of illegal games on PS1 (but yes it didn't take long for piracy to be rampant).
duduspace11 "Well, since we are estimating costs, Pokemon Red/Blue did cost Nintendo about $50m to make back in 1996"
Mr Puggsly: "Hehe, I said good profit. You said big profit. Frankly, not losing money is what I meant by good. Don't get hung up on semantics"