The above link is a very thoughtful article that includes latest debates on the revenue/profit structure of the music industry.
I personally think the option 2 is a viable one at this moment. Law and policy do not forerun the trend to come. They only follow the traces of the new changes. It is hard to ask the legislators and policy makers to make certain changes when there aren't enough evidence to convince the benefit of the change.
The law status quo gives the room for having option #2 operable. The megal labels are dominant and their shrines seem permanent. But I doubt that anything is permanent. The changes are being made right now through various platforms. The big 4 are resisting the changes. But like the saying goes, "resistance is futile."
The chart below shows the current market power of the Big 4s.