This is actually quite a bombshell and the implications are enormous. First I'll go through the stuff that Sakurai outright says and then what's heavily implied.
Sakurai basically said it himself:
-Byleth was a hard corporate pick. I hate the term but, yes, the man himself says Byleth was a "shill pick."
-Nintendo has to approve everyone but they value Sakurai's opinion to an extent.
-Sakurai had someone else in mind for DLC but Nintendo didn't allow it.
-Sakurai worked with the character anyways while Three Houses was in development (technically from 2015 to 2019).
-Sakurai agrees with the fans, there's too many Fire Emblem characters but his hands are tied.
-Sakurai more or less admits he's practically required to cave to one hard Nintendo pick each DLC season if he wants any real chance of working with characters he wants to work with.
Now for the fun part, the hard implications of this interview:
-The character that Nintendo rejected is more than likely in Season 2. Sakurai says this game is a tribute to Iwata. Under those conditions, Nintendo's likely not to refuse.
-Sakurai said they already worked with the character. Sakurai hasn't worked on anything but Smash since 2011. He's worked on Ultimate since 2015. This hard implies that the mystery character was in Smash Ultimate's base, possibly Smash 4 DLC too.
-Under the conditions of the previous point, hard implies that not only will this character be a promotion of some kind but that the "promotions can't happen" argument just got severely crippled.
-With Nintendo outright turning down the character for the first wave of DLC, heavily implies that the character is third party because the base roster had 8 new first party characters and Byleth was the only full first party DLC pack.
-Pretty much confirms our theory that one of the six will be a hard Nintendo pick that exclusively benefits Nintendo. Nintendo picked a shill for Smash 4 DLC and they did it for the Fighter's Pass. Sakurai more or less admits he doesn't have a choice and will have to go with them whether he's super on board with them or not.
-Pretty much confirms my theory the other day, Nintendo considers fan picks but also how it benefits them. Under these conditions, Nintendo approving Altus, Square Enix, Microsoft, and SNK is not at all unusual. Atlus and Square go back to the NES, SNK has been a huge partner since the Wii, and Microsoft is easily the biggest company Nintendo has teamed up with in recent years.
-Corporate Nintendo still makes the final decision. Like my theory and information suggests, this is a giant red flag for indies, most Western developers, and franchises largely associated with Sony. Needless to say, this is kind of a bullet in the head to a potential Sony rep. At the end of the day, Smash is quite literally about Nintendo.
-The Nintendo "shill pick" for Season 2 was likely already decided by E3 last year. If Byleth is any indication, it's likely for a game already announced or even out. Friendly reminder that Nintendo does not own the Pokemon Company.
-Basically repeating my earlier post, heavily implies that Sakurai's rejected character will be one of the first characters of Season 2 if not the first.
Ladies and gentlemen, today is a good day.