EMPLOYMENT AGREEMENT

Exhibit 10.17

EMPLOYMENT AGREEMENT

This Employment Agreement (the “ Agreement ”) is entered into as of September 27, 2005, and shall become effective upon the closing of the Merger (as defined below) so long as Executive is an employee of the Company at such time (the “ Effective Date ”), between Digital Music Group, Inc., a Delaware corporation with its principal offices located at 1545 River Park Drive, Suite 210, Sacramento, CA 95815 (the “ Company ”), and Richard Rees, a resident of Texas (the “ Executive ”).

In consideration of the promises and the terms and conditions set forth in this Agreement, the parties agree as follows:

1. Position . On the Effective Date and during the term of this Agreement, Company will employ Executive, and Executive will serve Company as the Company’s Vice President, Business Development and will have such responsibilities and authority as may from time to time be assigned to Executive by the Company’s Chief Executive Officer and the Board of Directors of the Company. Executive will report directly to the Chief Executive Officer.

2. Duties . Beginning on the Effective Date, Executive will have day-to-day responsibility for business development, including identifying additional sources of music and other sound recordings. Executive shall serve the Company in such capacities and with such duties and responsibilities as the Chief Executive Officer of the Company and the Board of Directors of the Company may from time to time determine. Executive will comply with and be bound by Company’s operating policies, procedures, and practices from time to time in effect during Executive’s employment. Executive will perform his duties under this Agreement at the offices of Company. Executive hereby represents and warrants that he is free to enter into and fully perform this Agreement and the agreements referred to herein without breach of any agreement or contract to which he is a party or by which he is bound.

3. Exclusive Service . Beginning on the Effective Date, Executive shall devote his full time and efforts exclusively to this employment and apply all his skill and experience to the performance of his duties and advancing the Company’s interests in accordance with Executive’s experience and skills. In addition, Executive will not engage in any consulting activity except with the prior written approval of Company, or at the direction of Company, and Executive will otherwise do nothing inconsistent with the performance of his duties hereunder.

4. Term of Agreement . This Agreement will commence on the Effective Date, and will continue until the earlier of two (2) years after the Effective Date or when terminated pursuant to Section 7 hereof.

5. Compensation and Benefits .

5.1 Base Salary . Upon the closing of the merger of Digital Musicworks International, Inc. with and into the Company (the “Merger”), the Company shall begin paying Executive an initial minimum salary of one hundred and twenty thousand dollars ($120,000) per

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year (“Base Salary”). At such time, Executive’s salary will be payable as earned in accordance with Company’s customary payroll practice. The parties agree this salary shall be applicable only to periods starting immediately after the Effective Date and that no compensation will begin to accrue or be due or payable until immediately after the Effective Date.

5.2 Additional Benefits . Beginning on the Effective Date, Executive will be eligible to participate in Company’s employee benefit plans of general application, including without limitation those plans covering pension and profit sharing, executive bonuses, stock purchases, and those plans covering life, health, and dental insurance in accordance with the rules established for individual participation in any such plan and applicable law. Once Executive is eligible for health and dental insurance coverage hereunder, Executive’s spouse and dependents shall also be eligible for such coverage at Company’s sole expense. In addition, beginning on the Effective Date, Executive will receive such other benefits, including vacation, holidays and sick leave, as the Company generally provides to its employees holding similar positions as that of Executive.

5.3 Cash Bonus . Executive shall be paid an annual bonus, if ever, solely at the discretion of the Compensation Committee of the Company’s Board of Directors.

5.4 Expenses . The Company will reimburse Executive for all reasonable and necessary expenses incurred by Executive in connection with the Company’s business, provided that such expenses are deductible to the Company, are in accordance with the Company’s applicable policy and are properly documented and accounted for in accordance with the requirements of the Internal Revenue Service.

6. Proprietary Rights . Executive hereby agrees to execute, on the Effective Date, an Employee Invention Assignment and Confidentiality Agreement with the Company in substantially the form attached hereto as Exhibit A .

7. Termination .

7.1 Events of Termination. Executive’s employment with the Company shall terminate upon any one of the following:

(a) the Company’s determination made in good faith that it is terminating Executive for “cause” as defined under Section 7.2 below (“ Termination for Cause ”) provided , that if the “Cause” for termination is a curable failure by Executive to properly perform his assigned duties (as determined in good faith by the Board of Directors of the Company), then the Company will give Executive written notice of such failure (a “ Cause Notice ”), and if Executive fails to cure such failure to the reasonable satisfaction of the Board of Directors within sixty (60) days after the Company gives the Cause Notice, then the Company may immediately terminate Executive’s employment, and such termination will be conclusively deemed to be for “cause” hereunder; or

(b) the effective date of a written notice sent to the Company from Executive stating that Executive is electing to terminate his employment with the Company for “good reason” as defined under Section 7.3 below (“ Termination for Good Reason ”); or

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(c) thirty (30) days after the effective date of a written notice sent to Executive stating that the Company is terminating his employment, without cause, which notice can be given by the Company at any time after the Effective Date at the Company’s sole discretion, for any reason or for no reason (“ Termination Without Cause ”); or

(d) the effective date of a written notice sent to the Company from Executive stating that Executive is electing to terminate his employment with the Company (“ Voluntary Termination ”).

7.2 “Cause” Defined . For purposes of this Agreement, “cause” for Executive’s termination shall be as defined as (i) Executive’s failure to perform his assigned duties or responsibilities as an employee of the Company (other than a failure resulting from the Executive’s death or permanent disability); (ii) Executive being convicted of any act of dishonesty, fraud or misrepresentation; (iii) Executive’s violation of any federal or state law or regulation applicable to the Company’s business; (iv) Executive’s breach of any confidentiality agreement or invention assignment agreement between Executive and the Company; or (v) Executive being convicted of, or entering a plea of nolo contendere to, any felony, other than with respect to moving vehicle violations, or committing any act of moral turpitude.

7.3 “Good Reason” Defined . For purposes of this Agreement, Executive’s “good reason” to terminate his employment with the Company shall be as defined as (i) Executive’s position with the Company is changed in a manner which materially reduces his level of responsibility or the nature of his functions; (ii) Executive’s level of compensation (including base salary, fringe benefits and participation in non-discretionary bonus programs under which awards are payable pursuant to objective financial or performance standards) is reduced by more than fifteen percent (15%) without his consent; or (iii) Executive is required to relocate his principal office of employment more than fifty (50) miles without his consent.

8. Effect of Termination .

8.1 Termination for Cause or Voluntary Termination . In the event of any termination of this Agreement pursuant to Sections 7.1(a) or 7.1(d), the Company shall pay Executive the compensation and benefits otherwise payable to Executive under Section 5 through the date of termination. Executive’s rights under the Company’s benefit plans of general application shall be determined under the provisions of those plans.

8.2 Termination Without Cause or for Good Reason . In the event of any termination of this Agreement pursuant to Section 7.1(b) or 7.1(c):

(a) the Company shall pay Executive the compensation and benefits otherwise payable to Executive under Section 5 through the date of termination;

(b) for a period of three (3) months after the Effective Date, the Company shall continue to pay Executive his base salary under Section 5.1 above at Executive’s then-current salary, his benefits under Section 5.2 and any bonus due to Executive pursuant to Section 5.3, less applicable withholding taxes, payable on the Company’s normal payroll dates during that period, provided , however , that if Executive secures other employment during the period that Section 5.1, Section 5.2 and 5.3 remains in effect pursuant to this Section 8.2, the

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Company will be entitled to set off, dollar for dollar, whatever is earned in such employment against the amount owed to Executive hereunder; provided , that if the total amount of the benefits available to Executive under this Section 8.2, either alone or together with other payments which Executive has the right to receive from the Company, would constitute a “parachute payment” as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “ Code ”), then the Company shall pay to Executive at the time of termination an additional amount such that the net amount retained by Executive, after deduction of the excise tax imposed by Section 4999 of the Code and any federal, state and local income tax and excise tax imposed on such additional amount, shall be equal to the amount payable to the Executive under this Section 8.2 as originally determined prior to the deduction of the excise tax; and

(c) Executive’s rights under the Company’s benefit plans of general application shall be determined under the provisions of those plans.

9. Executive Solicitation . So long as Executive is an employee of the Company and for one (1) year thereafter, Executive shall not, directly or indirectly, either for himself or for any other person or entity, directly or indirectly, solicit, induce or attempt to induce any employee of the Company to terminate his or her employment with the Company.

10. Miscellaneous .

10.1 Arbitration . Executive and the Company shall submit to mandatory binding arbitration in any controversy or claim arising out of, or relating to, this Agreement or any breach hereof, provided , however , that the Company retains its right to, and shall not be prohibited, limited or in any other way restricted from, seeking or obtaining equitable relief from a court having jurisdiction over the parties. Such arbitration shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association in effect at that time, and judgment upon the determination or award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

10.2 Severability . If any provision of this Agreement shall be found by any arbitrator or court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable and to the extent that to do so would not deprive one of the parties of the substantial benefit of its bargain. Such provision shall, to the extent allowable by law and the preceding sentence, be modified by such arbitrator or court so that it becomes enforceable and, as modified, shall be enforced as any other provision hereof, all the other provisions continuing in full force and effect.

10.3 Remedies . The Company and Executive acknowledge that the service to be provided by Executive is of a special, unique, unusual, extraordinary and intellectual character, which gives it peculiar value the loss of which cannot be reasonably or adequately compensated in damages in an action at law. Accordingly, Executive hereby consents and agrees that for any breach or violation by Executive of any of the provisions of this Agreement including, without limitation, Section 3, a restraining order and/or injunction may be issued against Executive, in addition to any other rights and remedies the Company may have, at law or equity, including without limitation the recovery of money damages.

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10.4 No Waiver . The failure by either party at any time to require performance or compliance by the other of any of its obligations or agreements shall in no way affect the right to require such performance or compliance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind shall be effective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced.

10.5 Assignment . This Agreement and all rights hereunder are personal to Executive and may not be transferred or assigned by Executive at any time. The Company may assign its rights, together with its obligations hereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of all or substantially all of its business and assets, provided , however , that any such assignee assumes the Company’s obligations hereunder.

10.6 Withholding . All sums payable to Executive hereunder shall be reduced by all federal, state, local and other withholding and similar taxes and payments required by applicable law.

10.7 Entire Agreement . This Agreement constitutes the entire and only agreement between the parties relating to employment of Executive with the Company, and this Agreement supersedes and cancels any and all previous contracts, arrangements or understandings with respect thereto.

10.8 Amendment . This Agreement may be amended, modified, superseded, cancelled, renewed or extended only by an agreement in writing executed by both parties hereto.

10.9 Notices . All notices and other communications required or permitted under this Agreement shall be in writing and hand delivered, sent by telecopier, sent by certified first class mail, postage pre-paid, or sent by nationally recognized express courier service. Such notices and other communications shall be effective upon receipt if hand delivered or sent by telecopier, five (5) days after mailing if sent by mail, and one (l) day after dispatch if sent by express courier, to the following addresses, or such other addresses as any party shall notify the other parties:

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