The Nintendo component cables actually have decoding circuitry in them, since they are connected to the machine's digital output. It decodes the digital signal into analog right in the base of the cable. As to why it doesn't also provide some sort of digital audio is beyond me. Nintendo can't be bothered with logic.
The whole lack of digital audio output is a major let down. My entire system is hooked up with digital audio, including satellite, DVD, X-Box, and PS2. The only thing that's missing is the Gamecube. Hence, when using the Gamecube I have to tell the stereo to switch back to using the input in analog mode, which is quite irritating (especially if I forget to switch it back afterwards!).
Even though the system lacks Dolby Digital, it still would have been nice to just get the two-channel PCM audio in digital format. Maybe Nintendo could have contracted such a cable out to Monster? Oh well.
I've found that the lack of a digital audio output isn't that big of a drawback. Sure it would be optimal, but the Dolby Pro Logic Surround II sound (provided your receiver can decode it properly) sounds great on a lot of games (e.g. Metroid Prime).
A true digital audio out could mean that they could provide true mutli-channel audio, which is better than any matrixed format in my opinion. But it's too late. Nintendo could have at least given us analog audio on the component cable.
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