It’s easy to see the appeal of a crossover between these two properties. The Sandman series is also owned by DC Comics, and the early issues especially had a very gothic, moody feel that fits in well with Gotham’s vibes. An interaction between Batman and Death in particular would be fascinating because one of Batman’s most famous character traits is his unwillingness to kill, even when it would probably be best for the greater good. Not to mention, of course, Death could probably help give him some closure over his parents’ situation.
But in the end, the introduction of these characters into a one-off episode was considered too ambitious. As Paul Dini put it in the recollection of his own pitch, “It seems that Death and the Sandman are siblings in a sort of dysfunctional family of states of human consciousness. That part’s complicated, a little too much for just 22 minutes.”
To an audience of mostly children who have no idea who these new characters are, it’d be hard to properly explain all this while still making a compelling Batman episode that stands on its own. Even though Neil Gaiman himself seemed excited about the idea when Dini shared it with him, the producers still passed on the episode concept, telling Dini, “It was good for you to pitch it. But it’s just not for us right now.”