It was risky, although difficult to say how risky. I mean, I don't know how much revenue they were getting from their games with Nintendo, but with money coming in from Sony for making games for them in the first place they surely wouldn't have even needed the same level of sales to make the same amount of money. I expect Sony covered a fair bit of the marketing costs too, saving them some money there too.

You've also got to wonder just how negotiable Nintendo were back then too though. That was an era during which they had incredibly arrogant leadership. Entirely possible that they would've refused to negotiate as they thought Sony weren't serious competition and that after the PlayStation failed Square would come crawling back with their tail between their legs anyway.

Although that said, if games being multi-platform was easy to do back then and had been standard practice then I expect they would have went for that approach instead, or at least attempted to.

Yes, I'm pretty sure Sony pushed the marketing of FFVII to unknown hights and took a major part of the costs. This in turn made the game reach a much bigger audience. Square was able to create the game they envisioned, unbound by storage capacities and with a nice cash boost by Sony. Sony happily made this game their flagship title for the Playstation because they knew what kind of big deal it was. Win win.

I think Nintendo was indeed very strict with third parties, and we all already know why they were that way and how that created the gaming market that we know today. I think they were not ready to let third parties go a little loose at that point. They probably should have trusted them more. Or at least some of them. And this distrust may have been a reason why many third parties turned their backs. However, I find it pretty tasteless and salty by Square to actively convince other third parties to stop developing games for Nintendo. I feel like this is kicking your opponent when he's already down.

At the end of the day I think it was a combination of several reasons. Nintendo, Square and Sony all played a part in this story, so putting the blame into one's shoes like some of the people in this thread are trying to is just too simple. But at the end of the day all of this lead to several new developments: Nintendo's relationship with third parties is nowadays better than ever, Square is desperately trying to reignite Final Fantasy's magic and doesn't understand what made it big anymore, Nintendo publishes most of Square's Wii, DS, 3DS and Switch games, and Sony became a major player in the gaming industry.

You missed out on some of the best gaming experiences if you think the golden age of gaming started with the N64/PS1.

It was a golden age as a still vastly unexplored world, full of opportunities, with many console companies naïvely thinking they could have thrived.
Some consoles, like Intellivision and ColecoVision, had better HW, particularly their standard controllers, than competitors, but their managements weren't good enough and they eventually lost the war, while, Atari, the first leader, fell badly from its throne.
I tend to prefer games from '97 to around 2005, and some newer ones too, and I expect even better things in the future, I can see and I appreciate progress in game development (most of all I appreciated when the switch to 32bit and even better 64bit allowed to have really vast and detailed gaming worlds), but golden age isn't necessarily the best of all time, it's more an age when there were still fewer, and less refined, actual things than future opportunities, but everything looked possible, sooner or later.
That early simple gaming style isn't my favourite anymore, but I sometimes still miss it a bit.
BTW the Mario franchise, probably still the most successful ever, was born in that golden age, but Ninty was the first to lose part of that early innocence and turn it into a rarely failing and lethally focused gaming business instinct.
As for Sony and Ninty, I like what they do and I like and acknowledge their contribution to gaming, but I can also see how their overwhelming domination eventually crushed the remaining competition, and MS can be the right thing for many gamers (still far fewer than those that play on PC and just happen to use a MS OS because it's the most widespread there), but it isn't a proper replacement for what got lost in the console world.

I guess you are confusing better deal with cheaper. That is a big mistake. Both companies and customers look for the better deal, and each consider value in a different way. Just look for any premium product.

Why would anyone call pre-NES of golden era? We have only improved since them.

EDIT: I see why you say that, but don't really agree.

just like the 1600s were the golden age, its relative to the state of that time

It's funny, back in the days when it was announced that FF VII will not be released for N64 but instead exclusively go to PS I didn't saw it as a big deal. I knew that the FF-series is big in Japan and has some fans in the US but weren't even published in good old Europe. Just because of that fact I thought the FF-series can't be that big - otherwise, why would you miss the European market? Especially as it wasn't absolutely necessary to translate it - back in those days we were still used in Europe to have English in-game texts (but a translated description in the package - oh man how I miss those). I guess Nintendo saw it likewise and didn't see it as that big of a loss. They thought, FF VII would sell about as much as FF VI, with Sony's marketing power pushing it maybe all little more but no that much more. So, like myself, Nintendo didn't see a danger in losing FF VII.

As far as I know the mindset of old Nintendo, I think even after it was clear that FF VII is a massive hit, Nintendo just shrugged its shoulders and thought we can do our own big RPG IP or let someone else do it for us and we will have publishing rights. It think up to now, Nintendo think of themselves as the best gamer makers, period! No matter which genre - we can counter! That's really much their mindset. Nevertheless, I don't think that games like Mario Kart, Smash Bros, the divers Mario Sports games, Mario Party, etc. are meant as a counter to any other existing IP out there as Nintendo embraces the blue ocean strategy and are more focused on themselves than on what others do. Still, I think Nintendo wants to proof themselves and the gamers that they are the "masters of all genres". Splatoon (online-shooter) and Arms (innovative online-fighting game) are just their newest foray into new genres (they were not known for).

That's definitely not far from the truth, its a mindset of knowing they can do better which technically they did with Zelda OoT. FF7 was extremely important to the PS1 as Sony weren't known for making great games back than, they relied heavily on others making the games for them, basically doing an Epic Game Store and stealing the 3rd party games from under their feet of their competitors. While Nintendo just comes out and basically lets them take the 3rd party knowing they will do there own thing and as history has shown, Nintendo lives up to their own hype train on many occasions. With Rare by their side, they also conquered many other genres with Golden Eye/Perfect Dark dominating the FPS market and Killer Instinct taking it up there with the best of them just to name a couple games.

Nintendo to me has always been about the quality, similar to Blizzard back in their days as well, delivering the best games in their respective genres.

Ho 35 anni, quindi non direi che sono particolarmente giovane, ma grazie per il complimento. 

I want to highlight this post because it's beautiful. While all 3 players hurt each other and themselves by their behaviors, all 3 in the end came out strong and are who they are today due to these bad games they played. What consoles me the most is that Nintendo in the end really proved its pedigree, that, while pretty much the entire industry turned against it, the one who essentially rebuilt the industry, they were strong enough to rebuild and rise strong like a Phoenix. Still, it is important to highlight that Nintendo's existence in the market was truly put in jeopardy. For anyone who cares about the diversity and creativity in the world of gaming, this is a very sobering thought. So anyone cheering what happened and praising it as karma, you might want to give that a second thought. Nintendo was brought low, but they couldn't be kept low and that to me is an inspiring story in self-belief.