The more I read these replies, the more I realize Nintendo basically screwed themselves and Sony just happened to be at the right place at the right time.  Every explanation of why Sony succeeded can either be applied to NEC or is just plain wrong.  "Yamauchi was a dick and that's why devs want to flee Nintendo."  Yamauchi was still a dick when NEC entered the market in Generation 4, and that didn't help them at all.  "Sony was offering great deals to third parties, i.e. had more money to spend."  NEC actually had a bigger $$ advantage over Nintendo than Sony did, because Nintendo was a smaller company when the TG16 released.  By the time Sony entered the market, Nintendo was raking in two piles of cash from both the Gameboy and the SNES.  Sony was still bigger than Nintendo at the time, but NEC was a huge goliath compared to Nintendo.  It still didn't help them.  "The N64 just didn't have enough games and the Playstation did."  Yeah, that actually shows that Nintendo would have won if they gone with the CD.  Sony had all of those games, because Nintendo didn't adopt the CD format.

What actually was different between NEC's situation and Sony's?  When the TG16 released, third parties were making tons of money by partnering with Nintendo.  The TG16 and Genesis ended up with more third party games than Nintendo's Gen 3 competitors, but Nintendo still had the best third party games: Mega Man X, Dragon Quest, and especially all of the Square games, all ended up on SNES, plus a ton of other third party games.  Third party devs didn't majorly jump ship in Generation 4, because Nintendo was making them a lot of money.  Generation 5 was different.  CD's were clearly going to make devs more money.  Cartridge prices kept going up, while CD's were ultra cheap and had huge storage capacity.  CD was clearly the better technology and Nintendo just screwed up by not adopting it.  Sony was the best alternative to Nintendo, so they reaped all of the benefits.  Third companies left Nintendo, because CD's clearlly made more business sense.

Nintendo screwed themselves.  They weren't the first.  Atari crashed the video game market in the US all by themselves.  Leading companies can, and clearly have, just totally hose themselves over.  But in Generation 5, Sony was positioned to reap the benefits.  Nintendo fumbled and Sony picked up the ball and ran with it.  It was smart of Sony to take advantage of Nintendo's fumble, but Sony never would have had amazing success without Nintendo's fumble.

Maybe. Final Fantasy VII was the turning point for the PlayStation, and would've likely been a Nintendo 64 timed exclusive (or console exclusive) had the N64 had a disc drive.
Is there a chance third-party companies were getting so fed up with Nintendo that they would still support PlayStation much more enthusiastically even if the Nintendo 64 had a disc drive? Possibly.
I think we would've seen a strategic tie between the N64 and PS1 in terms of hardware units (About 64 million each, give or take a few million). Basically the Xbox 360 and PS3 difference of a few million (within margin of error). Nintendo would be going into the sixth generation with a far stronger foundation in terms of sales and would use DVDs (or something similar) for the GameCube instead of miniDVDs.

@The_Liquid_Laser: You're missing one important point: N64 launched 1,5 years later than PSX. The publishers had already games out on PS before N64 was out.
Sony did where NEC failed; PC-Engine did well in Japan, where it had one year headstart before Megadrive released, but it's overseas release was delayed so much, that it was released outside of Japan later than Megadrive. Sony released it's system rather quickly worldwide, and did something where Nintendo and Sega had failed; gain foothold Europe. If you compare the sales numbers, in Europe PS outsold all the Nintendo and Sega home consoles combined, that were released before it. And for the other regions, you can count on all the Nintendo and Sega systems combined until NDS, and PS would still surpass them in sales.

When you compare SNES and N64, N64 lost 4 million in sales combined in NA and Europe.

It's really hard to see any scenario where Nintendo could have won the generation, because Sony won mostly in regions Nintendo did not want or could not sell games in. Even if N64 had all the big hitter 3rd party games, PS would still had ports for them, because of other regions that Sony was pushing it's sales and Nintendo was not. Sony could also sell it's consoles and games everywhere where they sold Sony's TV's, whereas Nintendo would need to establish business relations and retail channel - that they eventually did with NDS and Wii.

If N64 had reached the sales of NES in Nintendo's core markets, and Sony had lost total of 30 million in sales in these markets, Sony still had won, because eventually the 3rd party games had been ported on PS.

"N64 launched 1,5 years later than PSX. The publishers had already games out on PS before N64 was out. "

NEC did this and they did it better.  They released 3 full years ahead of the SNES.  Publishers already had games on the TG16 before SNES was out.  It didn't matter, because none of these games were killer apps.  Sony had the same situation.  They had some third party games, but they didn't have any killer apps until Final Fantasy 7.  This point you are trying to make doesn't matter, because it doesn't make Sony's strategy any better than NEC's.

"Sony released it's system rather quickly worldwide, and did something where Nintendo and Sega had failed; gain foothold Europe."

Sony was able to do well in Europe because it was so successful in Japan.  Having lots of games and profits in Japan is what let them expand into Europe.  If they never succeed in Japan, then they never get much of a foothold in Europe either.  PS1 peak fiscal year ended in March 1997 in Japan (the year FF7 released), but it peaked 1999 in the US and 2000 in Europe.  Europe's sales curve was delayed compared the US and especially Japan.  Sony expanded later, after it was already succeeding in the establsihed markets of Japan and US.  If it didn't succeed in the established markets, then it wouldn't have expanded into Europe as much as it did.  It takes profits to launch into a new territory and a good game library helps a lot too.  Sony had both, but only because it was getting the third party games that Nintendo lost by not going to CD-ROM.

The only big advantage that Sony had over NEC was that Nintendo majorly fumbled with the N64.  Sony played their cards right when this happened, but they never would have gotten this opportunity if Nintendo hadn't majorly fumbled in the first place by not using a CD-ROM.

As I said, NEC was successful in Japan, where it had it's headstart. Abroad it was not, because Sega had it's system out first, ending up taking the third parties - and this was where Sega failed with Saturn.

Doesn't matter if the sales were "delayed", because Sony still published these games and gave them a huge marketing push. This means, that Sony takes a larger share of the games sales (in theory, naturally depends on the contract), but they also print the discs and ship them to retailers at Sony's own cost - in this sense it should have not mattered for 3rd parties if the games had been on gold bars, because it had not been additional cost for the developers. This was much like the "Dreamteam" on N64 that worked in second party relation to Nintendo, with the difference that Nintendo's games releses were in Japan, North-America and limited markets in Europe, whereas Sony's releases were everywhere there was Sony TVs and Walkmans.

And sales would be even stronger if they cut the price of carts to 3rd party developers so they could use bigger sized ones and fit their games.

My conclusions from this thread:
Many people dare to think Playstation exists "thanks" to Nintendo, succeded "thanks" to Nintendo, got FFVII "thanks" to Nintendo. So basically they're trying too hard to deny the Playstation value and merit. 100% of PS success came from themselves deciding to enter the video games industry and doing things better than the competition.
Many people still believe to this day that N64 is superior in "every" aspect except for the CDROM. They didn't know or simply ignore specs where PS is better.
There's even people saying N64 games would look "even better" with CDs because of storage space on discs, when in reality graphics will still look blockier than PS (lower poly capabilities) and textures will still look extremely blurry (N64 inferior texture cache size).
Some people say Playstation games were "garbage/puke" before FFVII, when in reality it had a bunch of great and few multimillion sellers from 1st and 3rd party (many of them released even before the N64):
1995: Ridge Racer, Tekken, Twisted Metal, Rayman, Arc The Lad, Tomb Raider, Jumping Flash.
1996: Tekken 2, Crash Bandicoot, Resident Evil, Suikoden, Arc The Lad II, Twisted Metal 2, Parappa The Rapper, Persona, Wipeout 2097, Jumping Flash 2, Blood Omen.
1997 (the same year of FFVII): Ace Combat 2, FF Tactics, Hot Shots Golf, Croc, Tomb Raider 2, Crash Bandicoot 2, Tales of Destiny, Gran Turismo, Tekken 3, Alundra, Klonoa, Symphony of the Night, Oddworld.
Yeah, shitty games...
I don't see anyone admitting that Nintendo refused CDRom and kept using cartridges so they could keep all the cartridges manufacture revenue and maximize their profits, which they had until then as an avaricious and monopolistic company (ignoring customers and developers).
Speaking of tiranny, their money addiction put big pay wall on smaller developers while returning only a small amount of the revenue for the developer. Playstation on the other hand was a platform created for developers to create games easy, fast, and with a cheaper licensing fee. In conclusion, it opened so many doors for small studios to have more freedom and accesibility for making games (something similar to indie games getting more exposure and relevance in recent years since PS3/360 era), and ended up having a lot of games from these studios and the chance to be creative.

- This is a comment I found from a Reddit user:
"I once had a contract for N64 development.
Nintendo set minimum production amounts, normally 15,000 copies at minimum. You get to choose who does the packaging of the carts.
Production costs: First you have the production costs. Nintendo makes the carts in Japan at their factory, so they get the money from production.
Then nintendo takes a royalty, say $7 each cart for logos, nintendo seal of approval, etc.
Packaging runs you about $150,000 for the 15,000 carts. This includes manuals, the boxes, and shrink wrapping. This does not include delivery fees.
In the end on a $55 cartridge, a profit of $6-7 was made by the developer. Nintendo got all the rest. This is why nintendo didn't abandon cartridges for CDS. They were addicted to the money."

Yeah everyone could've won their generation if they did things better, but they didn't, as simple as that. We all can make a "what if" discussion with everything that happened in video games history, but I can't stand how arrogant Nintendo is mostly (Sony also was arrogant when PS3 launched), and how they always "get away" with their bullshit being glorified and praised by a good part of their fanbase for these practices.
And yes, they could've won if they used CD's, but many of these facts here would have remained the same.

How come they would be bigger? If I'm expected to pay 60€ for a game, it's really irrelevant whether the publihers are paying 50 cents or one euro for a cartrige. The games cost as much in E-shop than they do on store shelf - not sure if the E-shop sales are better than physical medium, and if they are, I'm sceptical for the reason being the publishers' saving money by not needing to pay for the carts.

Actually N64's polycount was roughly twice the number that of PS's. Texture cache was what made Nintendo to shoot itself on the foot. N64 had higher resolution, higher polycount, better hardware effects than PS - but the texture cache was minimal even by mid-90's standards, which made the games look blurry. What the CD made possible, was to stream textures directly from the disc - that was equally possible on N64 aswell, but carts did not have space for uncompressed textures/videos.

The added cost of carts came with higher price on store shelf. N64 games were roughly 10€ more expensive than PS games. Out of the "55$" game, at least 50% is the retailer's share - this is why everyone wants to sell their games online by download.

Even if N64 had CD-ROM, it would still control the medium and who gets to use it - just like Sony did. Sony just took lower cut than Nintendo. If Nintendo had used CDs, it would have made more money themselves, because the cost for the medium had been lower, but the actual profit could have been higher.

And of course there was minimum quantity of medium a publisher needed to order when publishing a game - this is how wholesale works. No matter what system are you publishing a game to - on a physical medium - you need to manufacture minimum of one lot of the product.

Apparently the base 8GB cart was like 8x the cost of a BluRay. The 32GB and 64GB ones were around the $10-$20 mark above the 8GB. So they all went the cheap 8GB option and make you download the rest of the game. This is costing them game sales.

The reason it is costing them sales is because Nintendo gamers are a different beast. We are collectors of physical games not just gamers. I will not touch a digital game on Nintendo ever so don't expect sales to be better. On PC yes I do because Steam is a service I had for 15 years or so and that shit just works no matter what I upgrade my PC too.