A novel headphone system includes a first speaker assembly, a second speaker assembly, and an interactive visual display system. The interactive visual display system includes a display operative to output visual contents according to interaction with a user. In one embodiment, one of the displays can be a transparent display placed in front of the user's eyes. Live images passing through the transparent display can be merged with the digital image generated by the transparent display to give the user an augmented reality experience. In another embodiment, the headphone system includes an external device interface that enables a user to interact with the contents displayed from the screen via an external device or via the Internet. In another embodiment, the interactive visual display system is removable from the rest of the headphone system and can optionally be installed in another compatible non-headphone device.