While the relative cheapness of optical media might have given developers an incentive to make games for Playstation, it's not a be-it-and-end-all explanation for the N64's demise. After all, developers had no problem making games for Nintendo's cartridge-based handheld systems. There were even Metal Gear Solid and Perfect Dark games on Game Boy Color. Developers will bite the expense of cartridges in order to reap the greater rewards of a console's large install base.
The problem for the N64 was it didn't have a significant install base to begin with. And it was the job of Nintendo's first-party games to build that initial install base. Well, actually, it was the job of one specific first-party game to build that install base; Super Mario 64. Super Mario Bros. built the NES install base from day one, as did Super Mario World on the SNES. But Super Mario 64 did not have that effect; it didn't sell nearly as well as prior 2D Mario games and, more importantly, it didn't sell consoles nearly as well as prior 2D Mario games. As Nintendo released more Mario platformers, the pattern repeated. Wii and DS console sales spiked when a New Super Mario Bros. game was released, while Super Mario Sunshine and Galaxy had barely any effect on the market. Of course, the NSMB sequels on Wii U and 3DS failed to sell consoles, but I think that can be attributed to their cheap "rom hack" design rather than a market shift. 3D Mario still fails to do much of anything.
Nintendo and their fans like to moan about the lack of third parties but it's ultimately the job of first party games to build that customer interest first. What the failure of N64, Gamecube and Wii U ultimately represent is a lack of customer interest in Nintendo's first party games. It can't be "franchise fatigue" because that wouldn't explain the early and immediate disinterest. I personally like the argument that Nintendo lives and dies by how closely it stands by its arcade heritage. NES, SNES and Wii brought arcade game design into the living room, delivering simple reflexive games that have an immediate appeal to a wide audience. Nintendo 64, Gamecube and Wii U strayed far from the arcade game design and were largely ignored by everyone except the Nintendo diehards. The problem is that Nintendo neither understands nor really likes its arcade heritage, especially Miyamoto. Miyamoto has said he doesn't want to make 2D Mario anymore. Aonuma has said he doesn't like the original Legend of Zelda. As much as Nintendo likes to promote its retro heritage to the fans, it's disingenuous. They only do it because their more recent passion projects have failed to generate any real passion in customers. It's a sad state of affairs that will create a lot of problems for Nintendo going forward.
While the relative cheapness of optical media might have given developers an incentive to make games for Playstation, it's not a be-it-and-end-all explanation for the N64's demise. After all, developers had no problem making games for Nintendo's cartridge-based handheld systems. There were even Metal Gear Solid and Perfect Dark games on Game Boy Color. Developers will bite the expense of cartridges in order to reap the greater rewards of a console's large install base.
The problem for the N64 was it didn't have a significant install base to begin with. And it was the job of Nintendo's first-party games to build that initial install base. Well, actually, it was the job of one specific first-party game to build that install base; Super Mario 64. Super Mario Bros. built the NES install base from day one, as did Super Mario World on the SNES. But Super Mario 64 did not have that effect; it didn't sell nearly as well as prior 2D Mario games and, more importantly, it didn't sell consoles nearly as well as prior 2D Mario games. As Nintendo released more Mario platformers, the pattern repeated. Wii and DS console sales spiked when a New Super Mario Bros. game was released, while Super Mario Sunshine and Galaxy had barely any effect on the market. Of course, the NSMB sequels on Wii U and 3DS failed to sell consoles, but I think that can be attributed to their cheap "rom hack" design rather than a market shift. 3D Mario still fails to do much of anything.
Nintendo and their fans like to moan about the lack of third parties but it's ultimately the job of first party games to build that customer interest first. What the failure of N64, Gamecube and Wii U ultimately represent is a lack of customer interest in Nintendo's first party games. It can't be "franchise fatigue" because that wouldn't explain the early and immediate disinterest. I personally like the argument that Nintendo lives and dies by how closely it stands by its arcade heritage. NES, SNES and Wii brought arcade game design into the living room, delivering simple reflexive games that have an immediate appeal to a wide audience. Nintendo 64, Gamecube and Wii U strayed far from the arcade game design and were largely ignored by everyone except the Nintendo diehards. The problem is that Nintendo neither understands nor really likes its arcade heritage, especially Miyamoto. Miyamoto has said he doesn't want to make 2D Mario anymore. Aonuma has said he doesn't like the original Legend of Zelda. As much as Nintendo likes to promote its retro heritage to the fans, it's disingenuous. They only do it because their more recent passion projects have failed to generate any real passion in customers. It's a sad state of affairs that will create a lot of problems for Nintendo going forward.