I've only heard bits and pieces of the whole 'Ninty screwed Sony' thing...
...anyone knowledgeable about it feel like breaking down the who did what to who and why of it?
Here goes: Nintendo, though quite hesitant to jump into the realm of CD-ROM games, was closely monitoring Sega and the CD add-on for the Genesis. Nintendo and Sony entered negotiations for Sony to manufacture a CD & cartridge based combo system called the "Play Station." Nintendo didn't like the idea that they would not have full control over the manufacturing and distribution of CD-based games and the relationship between the two began to deteriorate. Nintendo's boss Yamauchi sent representatives to Phillips unbeknownst to Sony to negotiate a different deal.
Sony had no idea things weren't working out and at the 1991 CES, Sony officially announced the Play Station. The very next day at CES, Nintendo revealed their partnership with Phillips. The partnership was pretty much over then. Ken Kutaragi persuaded his superiors to allow his team to continue working on the Play Station. In the span of just a little over 3 years, they created the console that we would all know as PlayStation.
In quite the ironic twist, Nintendo was building up hype for their forthcoming Ultra 64 (N64) an announcing their "dream team" of developers. Chief among them were Squaresoft and Enix which hold enormous sway in the Japanese market as the release of a new Dragon Quest or Final Fantasy is almost like a holiday for them. After Nintendo revealed the final specifications for the N64, complete with sticking with the cartridges that they held a stranglehold over both the manufacturing and royalties for, Squaresoft, Enix, Capcom, Konami, Namco and just about every single other developer in the world shifted their focus to the PlayStation. Why? The most expensive cartridge can only hold 256megabits of information. In contrast, a single CD-ROM could hold over 640 megabytes of info and were easily swappable so games could span multiple discs.
To add insult to injury, the marketing campaign for Final Fantasy VII included two-page spreads in various gaming magazines and comic books with the tagline "Somebody get the manufacturers of cartridges a blindfold."
Not only did Nintendo basically create their biggest adversary, they handed them the keys to the proverbial kingdom by sticking with cartridges.