In reality it seems like it was Sony's intention all along to use this as a stepping stone to competing with Nintendo directly anyway.
Also, the contract between Nintendo and Sony was signed in 1989, and Sony would have received all royalties from CD-ROM sales. This was at a time when it was still not clear that CD-ROMs would soon dominate the market. However, that had changed by 1991 when the Nintendo Play Station was revealed.
Then-president of Sony, Norio Ohga, said the following in his autobiography: “What we learned later was that Yamauchi’s son-in-law, then the head of Nintendo’s U.S. operations, had apparently nixed the deal. The son-in-law, Minoru Arakawa, had witnessed firsthand the stunning growth in U.S. sales of CD-ROM drives and disks. Arakawa knew that Sony had built a strong position in CD-ROM products. And he apparently feared that Sony would get the better of Nintendo in a collaboration.”