Telltale has become the de facto torchbearer for episodic games. It has two currently running games and even more coming. While an episodic strategy fits Telltale's story-driven style, they're the exception that proves the rule. Barely anyone else seems to be pursuing the model at all. The idea seemed so revolutionary only ten years ago, and it was a sure bet that more publishers would jump on-board. What happened?
These days, a plot-heavy game like The Walking Dead or The Wolf Among Us seem like the most natural fit for an episodic release model, but that wasn't always the case. In its heyday, publishers considered using it for everything from platformers to shooters. The promise of episodic gaming was to respond more dynamically to the marketplace, and fuel future game development with the upfront costs. However, those strengths may have also proven to be its fatal weaknesses.
Since episodes were so front-loaded, it meant the first episode had to cover both the upfront rendering costs and help fund the development of future episodes. If the first episode failed to bring in enough to cover both of those aspects, the game could fizzle altogether. Sin Episodes notably suffered this fate, leaving customers who were invested in the early episodes out in the cold.
We still see that dynamic working, to a lesser extent, in Kickstarter campaigns and Early Access games. Developers don't like to leave their customers disappointed with unfulfilled promises, and publishers don't like the backlash that hurts the bottom line. The mere threat of unfulfilled promises could be intimidating enough to keep publishers away from an episodic model.
On top of that, responsive game development doesn't work very well on a tight schedule. Episodic gaming works best when customers can count on a standardized content schedule. Even though Telltale releases are sporadic, they are kept on a somewhat regular flow, appearing every few months. They can only do this with a very clear roadmap of content. It might respond with slight variation based on feedback, but real responsive design doesn't work very well episodically.
A game like Sonic the Hedgehog 4 was planned as an episodic release, and to Sega's credit it did listen to the fans when making the second episode. But, partly because of that, the two were so far apart they felt more like standard releases than true episodic content. Meanwhile we're still waiting for the third part of Starcraft 2. These don't feel like part of the same whole anymore. They're essentially sequels.
Then there are the games that simply flat-out disappeared. Half-Life 2: Episodes 1 and 2 were critical hits, but when's the last time you've heard anyone referencing or even asking aout Episode 3? In the minds of fans, the next Half-Life is and should be "Half-Life 3." The episodic promise has been forgotten.
The model may have been ahead of its time. Episodic gaming works best through digital distribution. Buying discs of episodes only works once a "season" has finished, which essentially turns the content into one long game and compromises the entire point of delivering it in smaller parts. In the more optimistic times when episodic gaming appeared to be the wave of the future, many gamers didn't have the Internet bandwidth to support such large file sizes, which could have caused hesitation on the part of publishers.
It can also be difficult to keep gamers hooked and coming back. Even with digital distribution removing the threat of trade-ins, we're a fickle bunch. We constantly chase the next, the new, the shiny. An episode might give us our fill and when the next one comes around, some minor iteration isn't really enough to tempt us back. It's a catch-22. If the developer offers enough value in the first episode to satisfy players, they may not be tempted back to buy the next one. If they fail to offer enough value, people won't buy it in the first place. Grand Theft Auto 4's episodes didn't set the world ablaze, I'd posit because at the end of the day it was still the same "Liberty City" to explore. We'd gotten our fill already.
Telltale's model is especially successful because it relies so heavily on getting us invested in the characters and story, and leaving us with a cliffhanger. Suffice to say people aren't still buying episodes of The Walking Dead because they care about solving simple adventure game puzzles; they care about Clementine. Emotional hooks are clearly superior to gameplay ones, in this case.
Episodic games haven't disappeared entirely, of course. Releases on iOS still use the model, because it works so well with the free-to-play, microtransaction-based model that is so popular on that platform. Indie games still occasionally use it too, as we saw in the case of Kentucky Route Zero.
As a major force for change in gaming, however, developers and publishers never embraced it. It seems likely that its time has passed, possibly before it had a real chance to shine. We may see a resurgence someday, but it will take developers and publishers finding ways to surmount the obstacles and make it work for genres outside of story-based adventure. That's difficult enough that most probably won't bother trying.