Once again the misconceptions creep up, and as I seemingly have to do every six months I will correct them. Here is what you need to know about carts versus discs. The cart that Nintendo used cost the third party developer twenty dollars for manufacturing and licensing. Both of which belonged to Nintendo. There was no haggling here every copy of a 64 game cost a developer twenty dollars per copy. I really wish I could dig up a reference for you, but while the internet has a very long memory. Search engines abhor going back over a decade. Anyway you can recall this annecdotally by the fact that you almost never saw N64 games in retail priced below twenty dollars. That was the break even point on the product. Even then the developer took a bath on development costs.
Sony was a entirely different story. Firstly with manufacturing and licensing a game would cost a manufacturer up front about six dollars. A couple dollars for manufacturing, and four dollars for licensing. Developers could even manage to get a better deal if Sony decided to offer them special consideration. Added onto that Sony worked under a buy back model. Which gave them greater retail penetration. What a retailer couldn't sell. Sony would buy back. This wasn't exactly a real pain for Sony mind you. Buying back an unsold disc for a couple dollars, and since it costed so little to make to begin with the games price could steadily decrease to bargain bin prices. This not only made retailers happy. It made developers happy, because they didn't incur that risk, and the sales window was significantly lengthened.
Basically the 64 cost developers forty percent off the top. While assuming all the risks. While the PS1 only cost a mere ten percent off the top. While the developer assumed very little risk beyond the development. So Nintendo was seen as cost prohibitive. While Sony was readily accessible. The end result was this. More developers made more games for the PS1. Rather then for the 64. In fact unlike the modern port market. You could make a profit on a game for the PS1, and yet show a loss for the same game on the 64. Worse yet the 64 port could actually cost the developer the profits made on the PS1.
Example of porting.
$1,000,000 development costs. Break even per console, N64 = 35,000, PS1 = 19,000. Sales N64 = 20,000 PS1 = 25,000. Profit N64 -$300,000 PS1 $312,000. Total profit $12,000.
Nintendo was not only a bad place to make money, but a place where you could lose big money. Third parties who did do business on the N64. Were large enough to make it profitable, or were calculating enough to develop so cheaply so as to be able to make money off of poor sales. There was little in the way of middle ground on the console. With game development costs rising, and a larger field. Developers didn't have any real choice. It was plain better to just develop for the PS1, and ignore Nintendo. Who lets face it were raping the shit out of the little guy.
Speaking to Nintendo passing on the PS1. The mistake was farming out an entire consoles worth of development. It is not a case of Nintendo passed so Sony ran with the thing. Sony took advantage of the situation, and demanded a joint venture. Which Nintendo promptly passed on. Really it was a lose/lose proposition. They would lose some control, and lose some profit. Ironically in hindsight it is looking like it was a good call. Given the troubles Sony has brought upon its investors this generation. No matter how you feel as a gamer. Speaking financially Nintendo has been doing pretty good financially, and that is all their own doing.