This is kind of incorrect. The original deal that Nintendo signed in 1988 with Sony would have given Sony a lot of software royalties.
Nintendo objected, and in 1992 they came to another agreement where Nintendo would get royalties.
Honestly though, even worse come to worse, if Nintendo had sat down with their major third party partners (Squaresoft, Enix, Capcom, and Konami) in late 1993 when Project: Reality was announced (the N64) and said "look we know you guys want CD-ROM, so lets compromise, we'll add a CD drive into our 64-bit system".
If *that* had happened, I think games like Final Fantasy VII would've been N64 exclusive, and Sony's platform would've been DOA.
Sony would not be able to compete against Nintendo if they had to go against an N64 that had Mario 64, GoldenEye, Final Fantasy VII, Zelda: OoT, Dragon Quest VII, and multiplats of all the Capcom/Konami stuff.
In hindsight, Nintendo should've also just bought minority stakes in both Squaresoft and Enix as well. They were all super close anyway, and Nintendo bought a stake in Rareware, why not Squaresoft and Enix too
