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Leynos said:

I recall Sony wanted more control than Nintendo was comfortable with. I don't think Phillips felt wronged. They made a deal with Nintendo for Hotel Mario. 3 Zelda games and Super Mario World 2: Wacky Worlds. The last one was canned mid-development. Lol seeing how bad those games were. I'd say Phillips was the one in the wrong.

As for SEGA. Don't put much faith in that being on Sony. SEGA of Japan constantly made awful decisions and was very stubborn. SEGA of America often had better ideas to do things but SOJ always overruled them and made things worse.

That's exactly what I heard as well. If that is true than it was Sony that ruined their contract with Nintendo. I believe many are blinded by the success of the PS1's success that they will possibly believe they earnt every right to ask for more. Forgetting Nintendo at that time, were the market leaders, they revived and recreated the console market. If Sony wanted to be part of it than they could have clearly got in with asking for less, but judging Sony at the time who were one of the biggest electronical brands in the 90s probably wouldn't accept less. 

The reason I brought up Sega adds to the fact that 2 of the biggest console platforms at the time said no to Sony makes you wonder, why.

Anyway its all speculation, weather Sony wanted more or Nintendo just wanted to be evil is all we will ever know.