Digital Music Group, Inc. 2151 River Plaza Drive, Ste. 200 Sacramento, CA 95833 Tel ###-###-#### Fax ###-###-####

Exhibit 10.1

Digital Music Group, Inc.

2151 River Plaza Drive, Ste. 200 • Sacramento, CA 95833 • Tel ###-###-#### • Fax ###-###-####

July 10, 2007

DELIVERED VIA E-MAIL

Mr. Mitchell Koulouris

Dear Mitch:

We are in receipt of your resignation letter dated July 9, 2007. The purpose of this letter is to advise you that your termination of employment will be treated by Digital Music Group, Inc. (“DMGI”) as a “Without Cause” termination under your Employment Agreement dated September 13, 2005 as amended by Amendment Number 1 dated September 10, 2006 (the “Employment Agreement”) and under your Restricted Stock Purchase Agreement dated August 26, 2005, and that such termination therefore shall be effective August 9, 2007.

On the effective date of your termination, you will be provided with:

On the effective date of your termination, DMGI requires that you be in full compliance with the termination provisions of the Employment Agreement, and that you deliver to DMGI the signed Termination Certification as required under the Employment Agreement (Exhibit C to the Employment Agreement). If, in DMGI’s opinion, you are not complying with such termination provisions or you do not deliver the required Termination Certificate, DMGI reserves the right to revoke this letter and commence actions necessary to protect its interests.

http://www.dmgi.com

Pursuant to Section 8.2 of the Employment Agreement, from the effective date of your termination, DMGI will continue to pay your current base salary of $12,500 per month for a period of twelve (12) months (through August 2008), less applicable withholding taxes, payable on DMGI’s normal payroll dates. However, if, in DMGI’s opinion, you are in compliance as of December 31, 2007 with all the covenants and provisions of all agreements with DMGI that survive your termination, then DMGI will make a lump-sum payment of the remaining salary continuation amount on December 31, 2007. Also, pursuant to Section 8.2 of the Employment Agreement, DMGI will continue group health, dental and vision insurance benefits for you and your family, or pay COBRA premiums necessary to continue such coverage, for a period of twelve (12) months (through July 2008). In addition, pursuant to Section 8.2(b) of the Employment Agreement, a cash payment (less applicable withholding taxes) of $26,250 will be made to you on December 31, 2007, in satisfaction of your right to receive a pro-rata bonus for 2007 under Section 5.3 of the Employment Agreement.

Pursuant to Sections 4.A. and 4.B. of your Restricted Stock Purchase Agreement with DMGI dated August 26, 2005, the remaining unreleased Restricted Shares under such agreement will be released from the Repurchase Option at the effective date of your termination; upon your written request after such date, DMGI will instruct its Transfer Agent to deliver such shares to you. Likewise, pursuant to Section 4 of your Founder’s Restricted Stock Purchase Agreement with Digital Musicworks International, Inc. dated March 21, 2004, the remaining unreleased Restricted Shares under such agreement will be released from the Repurchase Option at the effective date of your termination; upon your written request after such date, DMGI will instruct its Transfer Agent to deliver such shares to you.

If you have questions, please call Clayton Trier at ###-###-####.

Sincerely,
DIGITAL MUSIC GROUP, INC.
By:
Name:		Clayton Trier
Title:		Chairman of the Board of Directors

http://www.dmgi.com