Bitstream vs PCM (LPCM) when using a DAC or in your Home Theater Setup
Why don't I hear the digital audio?!
In your Home Theater Setup:
When setting up digital audio for your home theater, you need to decide which component; the source device (Cable box, DVD, Blu Ray player, etc) or the Receiver (or Preamp/Processor) is going to "decode" the audio and possibly (depending on the analog or digital outputs you use) convert the signal from digital to analog. This is especially a point of confusion with the new Blu Ray players.
Here's the simpletons (mine) explanation:
The Source device does not decode the signal, so the Receiver must. In other words, your player does not have to be capable of decoding Dolby Digital, DTS etc, and just outputs the undecoded digital information to the Receiver, which MUST be able to decode the signal it receives. So if your Blu Ray player cannot decode DTS-HD Master Audio but your receiver can, you should go into the Blu Ray players "Setup" menu, find the digital output setting and set it for "Bitstream".
If your Source device can decode all of the digital audio formats you want, then use this. The setting is commonly called either LPCM or PCM. This is the most common fix for people who are unsure of the problem. This is also arguably the best setting for many Blu Ray Players even with receivers capable of decoding all of the new formats*. Blu Ray players which cannot decode some formats mated to receivers that can decode them should be set to bitstream instead.
Analog Output from Source:
Another question on DACs that may haunt you is whether to use the DAC in the source or the receiver? Some Disc Players and Receivers have decidedly different quality levels of DACs. To use the DAC in the DVD/SACD/CD/Blu Ray player it MUST have analog outputs which MUST be connected to the analog inputs on the receiver. You would do this when you feel the DAC is better in the Player. If you feel the DAC is better in the receiver, then you should set the player to output bitstream or pcm to the receiver and not use an analog connection between them.
Using an "outboard" DAC:
We sell a whole lot of DAC's (Digital to Analog Converters). Especially the new Gefen DAC's. They are great audio signal and routing problem solvers. We get some returns from users who get no output and think the unit is bad. In the vast majority of cases it's due to not setting their source components output properly. DACs that support LPCM and not Bitstream are not going to give you any output if the DVD/Blu Ray player is set to Bitstream! They don't have the decoders necessary to decode the digital audio signal before converting it to analog. Decoders for Dolby Digital and DTS come along with licensing fees after all, so a decoder with this capability always costs more. For Bitstream decoding and conversion you need a DAC/Decoder.
*Blu Ray HD formats: yeah, we know, you won't get the groovy TrueHD or DTS-HD Master "light" to turn on, on the receiver, but you'll get all of the audio signals from the player.