Netflix has two films in the running for the Palme d'Or at Cannes.
But it has a policy of releasing its movies online on the same day they start showing in cinemas and French law bans online streaming until three years after a movie has been put on general release.
Netflix has refused to screen the movies in French cinemas, angering French cinema owners, who forced Cannes effectively to slap a ban on future Netflix-backed movies.
Netflix chief content officer Ted Sarandos said the world's top film festival should live up to its core mission of "celebrating arts", regardless of platform.
"Historically many films get into Cannes film festival with no distribution at all," he told a press conference in Seoul to introduce Netflix's South Korean-directed film Okja ahead of its premiere at Cannes.
The 45-million-euro project starring Tilda Swinton and directed by Bong Joon-Ho will hit theatres in South Korea, the US and Britain, but will only be available on Netflix elsewhere in the world.
Okja is slated for official competition along with another Netflix-backed movie, The Meyerowitz Stories, starring Adam Sandler and Ben Stiller.
But as from next year Cannes will require every film in competition to be shown in French cinemas afterwards, potentially preventing Netflix movies from competing for prizes.
Netflix CEO Reed Hastings accused the "French cinema establishment" of "closing ranks" against the US streaming service.
Sarandos said film festivals may be forced to adapt as more and more movies become available on platforms beyond traditional theatres.
"The audience is changing, therefore distribution changes, and therefore festivals ... are likely to change," he said, adding many good films in the future "may come to [Cannes] differently than before".
Okja director Bong said the dispute may be temporary as the industry adapts to new technology, pointing out that the advent of television did not kill filmmaking.
"I recently saw a French movie from the 1960s in which a character lamented, 'Cinema is all doomed because of TV' but look what is happening now," he said.
"People these days watch movies in theatres or via Bluray, legal online download and Netflix. I think that this is part of a struggle to find the best ways to coexist eventually."
Netflix is also locked in a similar battle against big US cinema chains. In 2015 most major multiplex chains refused to screen the long-awaited Netflix-made sequel to martial arts blockbuster Crouching Tiger, Hidden Dragon.