Keep in mind the kind of game FFVII was wouldn't be possible on the N64. The game was filled with hundreds of pre rendered backgrounds, many of which were taken straight out of and matching to the space-hogging FMVs. The game design was a huge departure from the tile-based backgrounds of the Nintendo games. So it was probably a creative decision as much as it was a business one.

We're also probably lucky in that Nintendo of America would've censored the crap out of the game and that would've taken away from the raw feeling the game had at the time.