A little of both I suspect. The Washington Post can generate a very modest profit if it's well run. It's around 1/4th to 1/5th the size of the New York Times.

The question would seem to be, whether Bezos intends to run a tight profitable ship, or if he is willing to forgo the profits for a larger staff. I'm hoping he has something creative in mind, a new business model that isn't free+ads or just a copy of what the NYT is doing.

WaPo is #8 by its daily circulation in the US, and #4 for its Sunday circulation.

I bet he puts up a paywall, but offers free access to Prime members. Combined with instant video and other benefits, Prime starts to look pretty attractive, even without the free shipping. But once you've got the free fast shipping, it's much easier to justify buying stuff from Amazon instead.