I have a 55LJ550M (WebOS 3.5) TV, connected to an A/V Receiver via ARC.
Per the online documentation, when the TV encounters AAC audio, it will transcode that audio to Dolby Digital for transmission over ARC. See: http://www.lg.com/ca_en/support/product-help/CT20098005-1437136302910-others
However, the sound quality is very poor when this occurs. The sound is full of compression artifacts, and with some older A/V Receivers, this causes the sound to periodically cut-out.
Some of the WebOS applications affected by this issue are YouTube (which mostly uses AAC audio), any Netflix stereo programming, and using the Music\Photo\Video app to play music or videos with AAC audio. To me, it makes the entire YouTube application unusable.
Honestly, I'm surprised that WebOS doesn't just output PCM audio over ARC whenever it encounters AAC. This would make more sense, and it would require less processing power and sound much better. (I know that I can set the TV to output everything to PCM over ARC, but I do not want to lose DD 5.1 and DTS sound from other programming which works perfectly).
Is this behavior a known WebOS 3.5 issue? I know that my unit is a one of the cheaper LG sets--it is possible that this particular set is just too under-powered to function as designed?