Aside from what
>>11900513 said about it not being quite ready I also suspect they just weren't ballsy enough to have a pack-in game that was a violent FPS based on 2 R-rated horror franchises at a time when politicians were already getting their panties in a bunch over shit like Mortal Kombat and Night Trap.
And if they did chicken out it's a little cheesy but it makes sense. Pack-in games were always kid friendly and going from Sonic and Mario to facehuggers might have been a step too far for a company that wanted the broadest possible appeal. But what I still can't grok is how Cybermorph becomes the alternative.
Yeah, it was a 3D game and that was the hot shit at the time but to most people it looked and played like a slower, less fun version of Starfox and it got instantly and fatally mogged by the wipeout demos that helped to sell so many playstations. It wasn't even impressive when it came out and got blown out of the water soon after.
I must ask, again, how the fuck did they spend years developing this thing, go all-in on it financially, and not really have any idea what their big launch title was going to be? Every console available at the time came with an A-list pack in game. By a Nintendo you get Mario. Buy a Genesis you get Sonic. Hell, even the TG16 gave you Bonk. They realized they had to put their best foot forward from minute 1 to compete in a crowded market. And Atari just picked whichever random title was ready at the time and was like "yeah, good enough." Everything they did was wrong