If I was you I would do some reading about discrete versus matrixed surround sound formats. I'll give you a quick primer here, and then you can go do your own research. You also need to factor in what ARC (
not eARC) supports.
All the audio formats that make the Yamaha display a blue light are discrete. That means each channel is dedicated only to itself; the centre only carries centre channel info, and the left only carries left channel info, and so on. DD and DTS are also discrete, but unlike DD True HD and DTS-HD the older formats are lossy.
LPCM is short for Linear Pulse Code Modulated audio. This can be mono (unusual to have but still possible), stereo (very common), or any combination of multiple channels all the way up to 7.1. In typical use though we see Stereo (2.0) LPCM and Multichannel LPCM in either 5.1 or 7.1 format depending on the number of channels the TV prog / stream / disc carries.
The number of channel is one facet of LPCM. The other is the data rate (bandwidth) of each of those channels. LPCM can be though of as a lossless container, and you can have anything up to 24-bit 192kHz Hi-Res audio in LPCM format
if - and this is a big IF - if the connection format supports it. For example, a domestic Optical connection has enough bandwidth to carry stereo 24-bit 192kHz audio, but not enough bandwidth to cope with 5 channels at say 16-bit 44.1kHz or even lossy 5.1 DD/DTS converted to LPCM.
Why is Optical still relevant in an age of HDMI ARC?
The answer is bandwidth. HDMI ARC (
not eARC, just ARC) is built around the same bandwidth limits as Optical. That's why ARC supports DD and DTS and 2.0 LPCM, but is does not support Dolby True-HD or DTS-HD. Likewise, ARC does not support multi-channel LPCM.
The bandwidth limit of ARC is part of the reason why eARC was developed. It raised the limits so that an eARC source connected to an eARC audio system could have Dolby True HD, DTS-HD, and up to 7.1 LPCM. However, both sender (TV) and receiver (audio system) need to be eARC enabled. If one or the other is not then the standard falls to the lowest common denominator which is ARC standard. Just to refresh you, that's 2.0ch LPCM, DD and where supported - but not on LG C1 tellies - DTS.
What is the orange light on the Yamaha showing?
This could indicate a matrixed audio signal.
Before DD and DTS (and before AC3 if anyone is being pedantic) home audio for VHS, broadcast and Laser Disc was limited to stereo. In order to get some form of rear channel action going the clever folk at Dolby Labs pinched and modified an idea they'd been using in cinemas called Dolby Stereo. This was a way to bury (hide) both centre channel and rear channel audio in to a stereo signal in a way that was undetectable with normal stereo gear. This idea of hiding it is referred to as matrixing.
For home use this became
Dolby Surround, and so amplifiers started to appear with Dolby Surround Sound decoders. That's a bit of a mouthful and so the name Pro-Logic was born.
Since ARC can't carry multichannel 5.1 LPCM then the best you'll do is 2.0 LPCM. However, that signal can have the matrixed centre and a rear surround channel hidden within it by a process called down conversion in the console. In simple terms, the console takes discrete multichannel audio and makes a stereo + Dolby Surround matrixed signal. (You may need to check your console audio settings here)
This 2.0 stereo LPCM + matrixed signal will then pass from console to TV to sound bar via the HDMI ARC connection. The sound bar can then use Dolby Pro-Logic II Movie mode or Game mode or Music mode to decode it.
What's the catch with matrixed surround sound?
It's not as precise as discrete audio. It lacks the ability to steer sound as cleanly as DD/DTS, but DPL II does at least support left and right channels for the surrounds whereas ordinary DPL was just mono surround. However, there's no dedicated LFE track (the .1 bit of 5.1/7.1) so although your sub will run with the sound bar it's just supplimenting the bass from the main 5 channels. IOW, you lose the extra bass kick of the dedicated LFE track.
Conclusion:
I'm fairly certain that you won't get 5.1 or 7.1 multichannel LPCM via the TV ARC connection. The best you'll get is 2.0 channel stereo LPCM with matrixed Dolby Surround when playing DTS content.
I’ll consider getting a new sound bar in the future. 
