That's what option 1 is.
The big difference here is that assuming Switch 2 gets a Smash, and why wouldn't it since we've gotten one every console generation, the thing is this game'll be running on a console that can already run Ultimate, assuming Switch 2 is backwards compatible.
The question is how do you get people to drop Ultimate for the new game, because that's not going to be easy.
This is going to be the first time since Brawl where 2 Smash games co-exist on the same platform(Not counting 64 here obv), and Melee to Brawl was really the first big split in the community. Are we going to have this happen all over again?
I had assumed when you talked about Splatoon you were talking about the jump from 2 to 3 rather than 1 to 2. My mistake on that part.
Melee and Brawl caused a split in the community primarily due to the combat rather than the roster. A competitive schism.
However, a new game may be the inverse. That the community becomes split due to the roster instead, especially if it downscales in terms of amount and scope. A more casual schism.
I don’t see the combat changing much from Ultimate. Maybe it gets a bit faster or a bit slower.
I have heard people talk about the post-Wii era being a generational divide, and it’s hard to deny. We’ve seen new franchises born in the 2010’s such as Xenoblade or Splatoon, and the rising prominence of Animal Crossing and Fire Emblem, while we have seen some franchises go dormant, get a one-shot revival, or even end outright during the 2000s and 2010’s.
And being realistic, it won’t be very long before Switch nostalgia becomes a thing.
In terms of trying to retain Ultimate’s audience, I guess some things to try would be retaining a small group of legacy faces (such as Ness, Falcon, Little Mac), keeping and bringing in recent Switch characters, and bringing in a couple of timeless picks.