Sometimes Cuts Are Necessary Even When Business Is Healthy

On Thursday, The Wall Street Journal let go of “at least five more employees” from the U.S. news and “speed and trending” teams, as per Politico. In the Politico newsletter, the author wrote:

The lack of a business rationale for recent cutbacks has vexed the WSJ newsroom, and union members are planning a lunchtime walkout today in protest. “There seems to be no justification for doing this other than a wish to cut costs to the bone and maximize profits without regard to the destruction of employee morale, loyalty and the quality of our report,” said one WSJ journalist.

And the business has been doing well. In fiscal Q3 2024 financials, the Dow Jones division generated $544 million in revenue, a 3% year-over-year increase. EBITDA grew 8% to $118 million. The growth was driven by an increase in circulation and subscription revenue, with the Consumer group growing subscriptions from 5.427 million in Fiscal Q2 2024 to 5.723 million in Fiscal Q3 2024.

Given the strong financial performance, the decision to conduct layoffs may seem puzzling. However, a closer look at the editor in chief’s memo sheds light on the rationale. In the memo to the staff, WSJ editor in chief, Emma Tucker, wrote:

As you know, ambitious and revelatory work is at the center of our reader-first strategy. To execute that strategy, we must concentrate our efforts on areas where we can best do distinctive work.

…

Our readers demand timely reporting, and so we are converting Speed & Trending into a new breaking-news desk. It will be tightly integrated with Platforms & Publishing under David Crow to ensure we are always fast and responsive.

Tucker closed with, “subscriptions are up, engagement is up, the website and the app and the paper are brilliant and surprising and interesting every single day.”

One area affected is local and regional general news. Tucker clarified that The Wall Street Journal wouldn’t stop covering the United States, but the approach to stories would change with a different organizational structure.

This round of layoffs at WSJ is not an isolated event. Similar discussions happened in January when the company announced cuts to its Washington D.C. bureaus, despite the upcoming presidential election. Adweek interviewed Merrill Brown, a media consultant, about this:

Both publishers have core competencies in other arenas—the Times in regional reporting and Hollywood, and the Journal in business news and finance—that are likely better sources of return than investments in challenger categories, said Brown.

“Readers of the Times and the Journal are not placing subscription orders to read political coverage,” Brown said. “In periods of retrenchment, sticking to your core competencies is an axiom.”

I see this memo as an admission that some content doesn’t resonate with readers as much as others. For media companies that pride themselves on being audience-first, investing in stories and content initiatives that do not move the needle for that audience is a waste of money.

Ultimately, I see a story about the finiteness of resources, despite the nine-figure EBITDA the division generated. Profit expectations drive the choice between investing in two types of reporting, favoring the one with the best return.

That is why there are currently 39 job openings at The Wall Street Journal with the word “reporter” in the name. There are an additional 35 for roles with the word “editor” in the name. The company’s decision to hire suggests a focus on specific content categories.

This highlights a crucial principle for media companies: when operating with finite resources, it is important to consistently analyze their investments. We usually think about this when companies are in trouble, but the best time to analyze your business is when things are good. I’ve had to lay people off before and it is far harder when there is a significant time constraint. Making quantitatively informed decisions with time on your side allows for better decisions.

All publishers should regularly analyze their operations. Inertia often leads us to do things simply because we always have. Look at your own business. There are likely underperforming aspects that are overlooked because it is otherwise doing well. The issue is that each action we take incurs costs. Spending on non-essential things depletes future resources.

But it’s also a time suck, an indirect cost. How much additional management do you need to support these underperforming initiatives? How much shared services are being deployed into non-core projects?

This is one reason why Mitch Bettis, owner and president of Arkansas Business Publishing Group, does time tracking. In our podcast interview earlier this year, he said:

Every product gets a profit and loss statement that reflects the time of design on their specific product. It reflects the time for ad design on their specific product and the editorial time on their specific product. So that we can tell with significant specificity what profitability is per product, per website, per print product, per digital initiative, per event, per custom product. We can make an evaluation of who’s hitting the contribution margin.

That’s [time tracking] been really important as we navigate profitability, we determine which product is going to stay and what products we’re going to replace, and where we’re going to invest. That all goes toward the big picture of where our health is.

The reality is, it provides a clear understanding of product performance. Surviving in media means being profitable, which requires each product to contribute to the overall goal.

Regarding The Wall Street Journal, there’s an obvious argument about the timing of all this considering the growth of the business along with the nine-figure deal its parent company signed with OpenAI. However, these cuts, despite strong financial performance, demonstrate a proactive approach to resource allocation.

As Tucker said, “we must concentrate our efforts on areas where we can best do distinctive work.” Other media companies would be wise to follow this example and foster a culture of continuous improvement, even if it means cutting weaker, underperforming parts of the business.