On your question I checked my music-DVD's, as language there usually comes up "english" except for a definetly german band, even though half of their songs is sung in english.
Generally I'd think that your first option is the better one, couldn't find any "music" entry though.

This was discussed back at the IVS board back when. Before that discussion there were actually a lot of DVDs listing the audio content as "Music only", which I'd still prefer, but IIRC it was decided that the language of the performance should be used, but it was not determiined if the song lyrics or the intermittant announcements or something else determine the performance language. It seems, however, that the song lyrics as the determining factor are most commonly used.

IMO there are three different possible approaches to this:

you could rely on the lyrics language, i. e. the language the songs are written in

or (in case of live concerts)

you could rely on the language the announcements are made in (which could result in different languages for the same band, depending on the location the concert was filmed, as many non-native-English-speaking bands tend to address international audiences in english and their homeland crowds in their native language)

or

you could determine the language track by the CoO of the band performing, relying on their native tongue, regardless of the langugae actually used.