You must be really young if you don't remember that there were far more console makers before Ninty conquered a near monopolistic market domination for almost ten years, interrupted just by the first Playstation. Sure, Ninty rose on the ashes of competitors burned by a big crisis, but from then on it actively prevented most of them to rise again and new competitors to rise for years, only Sega could barely compete for long period. Sure Sony just interrupted the monopoly, but it did nothing to increase plurality, MS could enter the market just by the brute force of its money and the force of its brand in PC market, while the new trimurti of console gaming merrily crushed poor Sega, the only survivor left, besides Ninty itself, of console golden age.
BTW, I'm not a Sony gamer, I'm a PC and Android one, the last console I owned was the Intellivision. I was on the brink of buying a PSV, because I tried it and it was the first portable of which I ever felt really comfortable with the form factor and control layout, but its commercial decline and the rise of cheap tablets made me change my mind. OTOH both my sister and some of my ex-gf's had a GameBoy, but I never liked it enough to buy one. Tried DS, I liked it more than GB, but still not enough, then 3DS came and I really didn't like its 3D screen. PSP, I liked some games, but unlike PSV, and despite having a control layout just a little different, it gave me hand cramps after playing for a while, so I didn't buy it either.
Ho 35 anni, quindi non direi che sono particolarmente giovane, ma grazie per il complimento.
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.
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.