People keep blaming the Sega CD but again, if you look at sales of both that and the Genesis/MegaDrive from 1992 to 1994, the Sega CD was the highest-selling add-on peripheral for a console during that time (and until the Wii Fit board and Kinect came out), and Genesis/MegaDrive sales kept increasing everywhere outside of Japan, most all of those being markets the Sega CD was in.
Also you have to consider gaming tastes at the time; a lot of people actually liked FMV games, it was only retroactively that those kind of games started getting backlash, particularly once the 3D console era got into full swing. 32X and Saturn costed them a lot more in the West (and Dreamcast in Japan, since Japanese fans were still invested in the Saturn there and Sega botched the Dreamcast release there on top of everything else).
No, it's not that simple. Essentially TLZ is right: Sega killed Sega (as a platform holder). You can trace it back to the 32X tbh. Also Sega were kind of wandering about slightly aimlessly insofar as a cohesive company. The arcade division was doing its own thing (including investing hundreds of millions into GameWorks...which probably could've been better spent on more Saturn 1P content, Saturn 3P exclusives, and Dreamcast R&D). They tried pushing into the PC GPU market with the Nvidia NV1 (a Saturnized GPU card) and SegaSoft. Sega of Japan focused on the Saturn at the expense of the Western market. Bernie Stolar basically tried killing off the Saturn in the West to push Dreamcast instead. And they still had other stuff going like the Pico.
Too many simultaneously initiatives for a company that wasn't financially stable or large enough to sustain them all. Mix that in with the corporate infighting, and what happened to Sega was eventually bound to happen (at the expense of their mostly great 1P software).