I'd pick 1. I don't believe news is some sacred service that must exist. Of course, if it were, the government could provide it, but it might cause issues with independence of state and the people, depending on the type of government. So, it's a service based on the free market, thus it must compete on the free market, no?

It seems like you believe that news is sacred, so your conclusions will differ from mine as we draw from different axiomatic beliefs. If that's the case, we won't be able to convince each other.