Ever since Nintendo grayed out the blood in Mortal Kombat, they've had to deal with accusations that their platforms were kids' stuff. Sega and Sony both rose to prominence by targeting an older demographic – the ones Nintendo has made into gamers the generation before. A few years into the Nintendo 64's run, it was starting to finally really hurt them. Killer Instinct, Mortal Kombat, and a late port of Resident Evil 2 were not enough to sway older gamers who craved mature, original content.
Nintendo wanted a major first party title that could connect with the older market, especially in North America. To help them achieve that goal, they turned to the last company you'd expect: Treasure.