The ATV4 is not passing through bitstream so your Pioneer should not/is not doing the decoding, the ATV4 is and sending the decoded signal for the Pioneer to distribute to the channels.
Okay. However, if this is true, then the TV3 and TV2 devices are also not passing through the AC3 bitstream since my TV2, TV3, and TV4 all play the same H.264/AC3 source content in the same way with the exception that I must either manually select the source AC3 track or modify the enabled/disabled and/or "fallback" track options so that all OS/IOS/tvOS players can automatically default to a desired and/or compatible audio track. I.e., my Pioneer decoder says it is decoding mono, stereo (with or without active PL II), or DD5.1 surround AC3 content dependent on actual content encoded in the original source AC3 track.
Regardless, you are correct in that there seems to be a problem here. Specifically, when using 7.1 (TruHD 7.1, DD+7.1, or DD AC3 5.1) I only get 5.1, regardless of ATV setting (auto or dolby digital). My AVR display will read 7.1 [PCM] when the ATV is in auto, but the rear surrounds are silent.
As previously noted on more than one occasion, I cannot test, confirm, nor deny any statements regarding 7.1 PCM encoded files since my only PCM files are AIFF stored music CD content with which I am not concerned here—this includes any questions of 7.1 source content being limited to 5.1 audio output. On the other hand, I don't see why you would be surprised that AC3 5.1 source content would be limited 5.1 channelization since this seems self-evident or implicit in the base proposition, As to empty rear surround channels in the "Auto" mode, I can confirm this when sourcing DD5.1 content and forcing output as 7.1 PCM in the "Auto" mode. Again, as previously noted, the fact that the TV4 can open 7.1 PCM or 5.1 AC3 HDMI connections to the AVR does not necessarily mean that it will "populate" all available channels—especially if there is no source data channel to be mapped to a particular output channel.
I am using various Dolby .mkv files converted to .m4v then imported into iTunes. My setup is ATV4>HDMI>Denon AVR>HDMI>Panny Plasma. The denon can handle all the codec mentioned in this post on its own, if it were allowed to! But its not, since the ATV doesn't pass through a bitstream but decodes and then sends a decoded signal.
I am using the same basic workflow to create iTunes managed M4V files sourced from BD. What confuses me here is the format you contend your TV4 is sending to your AVR. The "Auto Surround" (AKA "Stream Direct" and "Pure Stream Direct") setting on my system always defaults to the Dolby Digital decoder on my system when I play an AC3 audio track on my TV4 set to the "Dolby Surround" option correctly displaying the originally encoded channels and always defaults to the 7.1 PCM decoder (with corresponding "empty" channels for unencoded original channels) when I play the AC3 track in the "Auto" mode. So just what is the format of this "decoded signal" being sent to your Denon that is neither PCM nor Dolby Digital content? Your own test results confirm my own findings with regard to TV4 output received/displayed by the AVR. The only difference I see is that you contend that a source AC3 audio track sent from the TV4 in the "Dolby Surround" mode is unconditionally re-encoded as DD5.1 content. This is not true on my system. A mono AC3 audio track is received and decoded as mono AC3 content, a stereo AC3 track is received and decoded as stereo content, and an AC3 DD5.1 track is received and decoded as DD5.1 content.
I am not sure whee the breakdown could be here other than ATV or the .mv4 file format? Obviously, there is no "7.1" signal being distributed to all 8 speakers.
In re-reading your post for the umpteenth time, I'm beginning to suspect the problem may be in your TV4 playback workflow. You indicate you used Handbrake to create M4V files for testing. This implies the your files contain both AAC and AC3 or AAC and PCM audio tracks. It is unclear, however, which track was being tested for TV4 output nor did you indicate the number of channels decoded (actively played) by your AVR for each test. Since the TV4 does not automatically default to the "Surround Sound" track as the previous TV2 and TV3 models do, a question arises as to whether or not you manually selected a correct track for TV4 tests, and if not, whether or not you modified the enabled/disabled and/or "fallback" track settings to force the TV4 to automatically default to the surround sound tracks rather than the AAC tracks during tests.
