It didn't start with Nintendo and it didn't start with third parties.
It started with Atari.
Not the answer you expected maybe but let me explain. Atari had flooded their system with crap the previous generation. Which led to consumer confidence being eroded to the point where the home console market was declared dead. Nintendo looked at this and put in severe restrictions on their platforms to prevent this from happening in the future. This of course upset third parties.
When the playstation swooped in, Nintendo didn't catch on time that third parties and the playing field had changed. Sony reopened the floodgates for software at the right time and caught Nintendo off guard. And they never recovered since.
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