S/PDIF is a digital audio format that is becoming more common. You'll find digital audio connections on most modern amplifiers as either coax connections or fiber optic toslink ports. Some video game sound chips output digital audio and then use a separate digital to analog converter to produce the final analog output. By picking off the audio in digital form you can pass it to your amplifier with no noise and no signal degredation.

The Saturn uses separate D/A converter so a digital audio output is possible. The model one I have has a TDA1386T D/A converter, while the model 2 has a PCM1710. Looking at the datasheets, I worked out where to get the necessary signals for a Cirrus CS8406 transmitter IC. Credit goes to the author of the SNES spdif mod for inspiration and technical info.

Here's a schematic showing what pins to hookup on the CS8406.

The TDA1386T de-emphasis line being low indicates no de-emphasis. The EMPH line on the CS8406 low indicates signal pre-emphasis. This meens the emph line has to be inverted. (Or you could just assume no pre-emphasis and tie the EMPH line high)

pin 15 on the TDA1386 and pin 25 on the PCM1710 are mute lines. I'm guessing that the system mutes the chip briefly on startup so I can use them as reset lines.

On the model 2 boards with the PCM1710 all the necessary signals have corresponding test points on the bottom of the board! These are listed above. The mute line I'm using for reset doesn't have a test pint only a small via hole to hook up to. It may make sense to just tie the reset line high. I need to look at my model 2 board and see if the test points are the same.

You can hook up a toslink transmitter directly or wire up a coax connector with the same circuit as in the SNES mod.