It's an interesting business model that seems to be working for Telltale, though it's quite possible that's merely because they cut corners and haven't tried anything new on a technical or mechanical level since TWD. I don't know how well it's worked for Dotnod, but I assume that it's well enough given how many other episodic games Square is planning on putting out.
I have to wonder how this would work with a game with "actual gameplay." Though I appreciate and enjoy interactive stories, I can see that they have very little mechanical depth that might complicate the release model. In fact, I think it's their near-exclusive focus on narrative that partly makes these games even viable as episodic. On the player's end there's no complicated mechanics to relearn or controls to acclimate to, and it certainly helps the developers knowing that there's nothing they need to innovate upon in the slightest. People merely expect more story, and that's all developers need to provide.
The only prominent episodic game that wasn't just interactive fiction was Half Life 2. We all know how well that worked. Obviously that's Valve we're talking about here, but I suspect that the pressure to improve gameplay mechanics in each installment (like a true sequel does) pushed Valve's schedule past breaking point. I truly worry about what might become of the new Hitman and FF7 remake, but then I guess we'll see for certain how well episodic works in an RPG context.
However, I think it's important to note: game development does not turn on a dime. Even in standard game development, a developer will move onto the pre-production of their next title during the production of their current game. That doesn't allow a whole lot of time to review and incorporate player feedback. This goes doubly so for episodic games which aren't likely to change their central game mechanics between releases. I can say with a very high degree of certainty that the episodic nature of the FF7 remake will not help developers to include player feedback. Tweaks maybe, but nothing that could've already been added in by standard patches.
As far as i know, that is a rumour. IMO, it's not really an option. So far, games with episodic content have been really short ones (if you put every episode together, you get 10 hours or less) and more importantly, i'm not sure how it would work with an ARPG in which things are fast paced overall. I'll prefer to have the entire experience and go all or nothing. If i'm not sure, i can always wait for a couple of months and search for all the feedback that i need to make a decision ^^ Anyway, is not like i'm adamant about it.
It is definitely not just a rumor.