It's not a free game. You're getting one (rotating) character and access to online matches for free, that's it. Season 2 will NOT force people to pay full price again, and as far as I know, those who haven't purchased it will not have access to Arcade or Story modes when they're released with Fulgore in March.
I don't understand everyone's dislike over it at this point, since Double Helix and Ken Lobb have made it clear that KI will never breach the price of a retail release. Would you rather pay full price for Season 1 and then buy Super Killer Instinct at the end of the year for full price again? Then Super Killer Instinct Turbo for full price AGAIN six months later with balance fixes that break the game further and bring a host of new bugs? No, no you wouldn't. Ken's own words on it from last year;