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I know its done on the fly, I would imagine it uses RAM, and transcodes from PCM to a essentially a file (data in RAM), then plays back the transcoded (encoded) data instead of the PCM.
In graph edit, this would be like: Capture PCM from device > encode the PCM to a file (or in RAM) > playback file (or RAM data) to bitstream device.
The older Creative X-Fi did it this way, Capture speakers > transcode PCM to DTS > send to SPDIF.
A side note, it turns out both the decoders and encoders for DTS are not quite up to scratch with FFMPEG, however Dolby seems to be fine, the author is probably a Dolby fan xD.
My Potplayer also puts out only gibberish, when re-encoding to DTS. I have tried many different settings to no avail. Everything except DTS reencoding works. Does this feature work for anybody?
Try switching to WASAPI exclusive if the receiver can do DTS-HD HRA, Potplayer actually encodes DTS as DTS-HD HRA not DTS Audio (aka DTS Surround, DTS Interactive).
DirectSound mode will cause it to send the core only, the core is DTS Audio. A little confusing but DTS-HD HRA and MA, both contain legacy cores.
If you look at the bitrate when switching to DTS, it goes up to 3840 kbps, DTS Audio is 1509 kbps.
That was a quick reply-thank you very much! I have tried Wasapi API in exclusive mode with the same gibberish coming from my speakers. The bitrate settings were indeed very confusing for me as I expected only 1509 and 754 kbit/s. My receiver only takes AC-3 and DTS. With the information you provided I guess the app is trying to squeeze DTS-HD through the SPDIF connection or something. My receiver says he is receiving DTS and I can make out some veery distorted dialog. DTS passthrough works flawlessly.
Potplayer will send all formats down SPDIF when in WASAPI exclusive, indeed the method being used to transcode PCM to DTS in the FF encoder is not great, but that's not Potplayer its self.
You should probably stick to DirectSound (legacy) mode, so that Dolby Digital Plus is transcoded to Dolby Digital (normally), and DTS core (DTS Surround) only.