Here's the popular story as I've heard it:

The North American video game industry crash of 1983 was Nintendo's chance to enter the North American market in earnest. A tidal wave of low quality, sometimes non-functional third party shovelware for consoles like the Atari 2600 had basically killed public faith in the industry, and folks were ready to write off video games as a passing fad. Inserting yourself into a dying industry like that takes some care, so Nintendo did some market research and found that Americans:

• wanted to hear nothing about video games, but were excited for AV equipment and high tech toys. CD players and VCRs were increasingly popular, and electronic toys like the Speak 'N Spell and Teddy Ruxpin were rapidly gaining popularity.

• Didn't really play games as a family, games were kind of considered toys for the youth, with very few Americans over the age of 45 claiming to enjoy playing video games.

• liked large things. American homes are fairly large by global standards, and especially in the still mostly analog world of the 1980s bigger usually meant better. A VHS cassette held more tape, and thus played longer, than the smaller Betamax cassette.

• Expressed frustration in finding good quality games through all the nonsense. Some games wouldn't even run, and in the 1980s, how could you tell?

Responding to this input, they changed the name of the console. Gone was "Family Computer" or "Famicom", in with Nintendo Entertainment System. The form factor was drastically changed, removing the conventional top loading edge connector slot in favor of that front loading then push down mechanism designed to emulate a VHS deck. The cartridge shell was made at least 4 times larger than a Famicom cartridge, though the circuit board inside was often identical in size and shape to a Famicom cart; most NES cartridges were mostly empty in size, but that size was required by the loading mechanism. Mostly as a marketing stunt, they offered a bundle early on with a robot toy called ROB that could interact with a few specially designed games. It was a gimmick, but a successful one.

And finally, DRM. To address the shovelware problem, Hiroshi Yamauchi, President of Nintendo, would personally approve every game published for the system. The console had a hardware lockout chip that would look for a corresponding key chip in the console; if none was found, it would reset the console, meaning unapproved software couldn't run. That, along with enforcing IP laws on the cartridge's physical design, was designed to make Nintendo the only publisher for the system; any third party developers would have to contract with Nintendo to manufacture the cartridges. Nintendo communicated this to customers via the Nintendo Seal Of Quality, a (trademarked) badge on the packaging to reassure customers that the game had gone through a vetting process. They stopped short of guaranteeing the game was fun to play, but that it functioned correctly, wouldn't crash or damage the console, and contained relatively wholesome content. Custer's Revenge would never wear a Nintendo Seal Of Quality.