Replay Games President Paul Trowe had an interview with Digital Trends during GDC in which they talked about some of the studio's projects. Replay is the company currently working on the Leisure Suit Larry remake which they funded over Kickstarter. Apparently, they were also working with Telltale Games to remake the King's Quest series, taking on Telltales' license as a third party. Even as news of this breaks, the deal has apparently since fallen through.
Telltale had apparently planned to work with Replay to remake King's Quest, a license the studio had acquired as far back as 2011, but plans fell through. Digital Trends confirmed this with VP of Publishing Steve Allison:
"While we deeply love King’s Quest here at Telltale, we can confirm that we are no longer working on the franchise. There was a time last year that we investigated partnering with third party developers to produce the game as a partnership but decided against outsourcing. We are not privy to what plans Activision has for the franchise, if any."
He refers to Activision at the end as a result of another quite that Paul Trowe provided in his interview. Trowe stated that plans fell through for a King's Quest remake, because Activision decided they wanted to do it themselves. They must have seen all that Double Fine Adventure! Kickstarter moolah, huh?
"Activision’s probably not going to give us the King’s Quest rights. [Telltale] had it, and we were going to license it from them to make the remakes. Then I talked to the guys at Activision and they were like, ‘No, we’re pulling it because we’re going to do it ourselves."
Whether Activision actually intends to remake the games, or simply sit on the license until they get a better offer, time will tell. Considering the franchise has been out of the public eye for so long, King's Quest isn't exactly a priority for them, I'd imagine. Still, I'd buy a remake or a franchise reboot in an instant... so many great memories and nostalgia associated with the games.
Quick summary: Telltale no longer working in a King's Quest reboot, though Replay Games was considered to develop it at one point. Activision either took back the license or the time expired for Telltale, and they may be considering remaking the franchise themselves.