Netflix has two films in the running for the Palme d'Or at Cannes, and a policy of releasing its movies online on the same day that they start showing in cinemas.
But French law restricts online streaming until three years after a movie has been put on general release, and Netflix refused to screen the movies in French cinemas.
The move angered French cinema owners, who forced Cannes effectively to slap a ban on future Netflix-backed movies at the world's top film festival.
Netflix chief content officer Ted Sarandos said Cannes 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 $50 million 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 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.
The move angered Netflix CEO Reed Hastings, who slammed what he called the French cinema establishment for "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," said Sarandos, 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 Blu-ray, 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".
