Consumer electronics retailer Best Buy Co. is partnering with digital media venture capital firm Fuse Capital (formerly Velocity Interactive Group), to create a digital media fund [pdf].

Best Buy will serve as sole limited partner of the fund, which focuses on strategic digital media investments as a complement to its current digital media and emerging technology investment activity, Retailer Daily reports.

Best Buy's most notable digital media investment to date was its September 2008 purchase of digital music service Napster. For about $121 million, Best Buy absorbed Napster’s 700,000 digital entertainment subscribers, web-based customer service platform, and mobile capabilities.

"We can foresee Napster acting as a platform for accelerating our growth in the emerging industry of digital entertainment, beyond music subscriptions," said Dave Morrish, EVP of Best Buy’s Connected Digital Solutions, at time of the purchase.

Fuse Capital says the new fund is designed to focus on investments in digital media companies that will help create the next generation of leaders in categories such as music, video, games, and personal media management, as well as other areas that leverage the touch points and reach of Best Buy.

Best Buy’s launch of its new digital media investment fund is the latest step in a recent series of aggressive moves to expand the reach of its business. Recently, it began selling outdoor living products on its web site and in select stores. Last month, reports indicated Best Buy would expand its assortment of private label consumer electronics merchandise. In February, Best Buy announced it will enter the secondary consumer electronics market this year. And Best Buy is continuing to roll out mobile phone stores in US shopping malls and urban downtown areas.

Next year, Best Buy plans to open between one and five stores in the UK with its joint venture partner, UK consumer electronics retailer Carphone Warehouse.

All this activity comes as Best Buy finds itself facing increasing competition in the consumer electronics space. Discount retailer Wal-Mart is rolling out a redesigned consumer electronics department to select stores. The new department is larger, featuring wider aisles, more products and interactive displays.

In addition, consumer electronics retailer Systemax, Inc. relaunched the e-commerce site and brand of bankrupt Best Buy competitor Circuit City, which closed all U.S. stores in March.