Ok. Here’s an experiment I did. I had my Apple TV connected to my Panasonic plasma and then analogue RCA out to my preamp in my stereo system. Now, I played various music from both Apple Music (256 Kbps) as well as Radio Paradise (lossless). So this is set up 1 in which there’s no AirPlay involved. And then in set up 2 I kept all the above as it is and Airplayed same songs in same bit rate as above to the Apple TV. So there only an additional AirPlay in set up 2 over and above set up 1.
Now, for the song on Apple Music (256 Kbps), there was no perceivable difference in sound quality when played through set up 1 and 2.
But we could hear a significant drop in sound quality in set up 2 as compared to set up 1 on the Radio Paradise song (lossless). So, it is proven for me that AirPlay does indeed compress (or modify in some way) FLAC/lossless files though on paper it is supposed to support FLAC bitrate.
That's odd because Airplay shouldn't be applying any kind of compression
However I do see a flaw in your setup - The digital o/p from the ATV should feed into your Stereo system via a clean DAC process if you are into critical listening
I see in your sig you already have a high grade standalone DAC - you should try using that rather than than relying on your TV doing the conversion the conversion to analog amidst the high noise circuitry nearby which will mess up the RCA o/p
Do you have the old gen ATV in which case you can use the TOSLINK out?
If it's the newer gen ATV, see if you can use an airport express instead.
I have five airplay setup - 1 that relies on ATV directly feeding digital into a Marantz SR6010 -> Analog RCA to a Marantz PM17 / direct airplay to Marantz SR6010
1 that relies on an airport express feeding optical out to an old Harman AVR5000
The other 3 use direct analog out from Airport express
As a stopgap during a setup, I used the ATV out in another room going to the TV and then analog out from the TV to amp but the result was rather sad - Having said that, the TV in question was a Mi and it may have a far worse DAC than yours
However, if i were you, I would really really try to move the analog conversion process elsewhere
Now, since the difference between the two setups is only the additional AirPlay, I have reason to believe that the same quality drop will happen in AirPlay even to Bluesound or even any better streamer. Just that you don’t have a comparable (integrated) stream to compare it with so may not realise.
I am not sure I’ve understood you well here. But if you are saying I should be upgrading my speakers or amp instead of ensuring better source for streaming, I don’t agree with you. You should listen to my system when I play CD. It is clearly not the bottleneck. And my reason to add a streamer to my set up is not to get better sound (I am extremely satisfied with its sound), but to play app based and internet radio music through it, for larger variety and to explore newer music.
If you are happy with your speakers and amp, absolutely no reason to change
All I am trying to say is as far as adding streaming capabilities goes, you shouldn't need to spend too much considering you got a quality DAC already
Try getting hold of an airport express, you may be more than pleasantly surprised