Thanks! I changed the Dolby setting from On to Auto, and the sound started working for Netflix TV shows. Before I was getting the message:
Incompatible audio format received check output device settings
and there was no sound.
The Settings are accessed through Apple TV. When you have Apple TV on, and you see all the colored rectangles for Netflix, huluplus, HBO etc., (which can be accessed by repeatedly hitting the Menu button on the remote), the top row shows:
Movies TV Shows Music Computers Settings
Use the 4 way controller to choose Settings, then press the button in the center of the 4 way controller to select Settings. Then select Audio Video. Then scroll down to Dolby Digital. When you are on Dolby Digital and you push the button in the center of the 4 way controller, the setting will change. I changed the Dolby Digital setting to Auto.