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Film festivals provide a forum for promotion and recognition of artistic achievements of national film industries. The first festival was founded at Venice in 1932. It remained unique until after World War II, when the festival at Cannes, France, was founded, and film festivals began to assume their modern-day importance. Struggling nations, rebuilding their shattered film industries, saw in festivals a chance for world recognition. The growing interest everywhere in film imports made the festivals an international marketplace for distributors. Festivals were initiated at Berlin, Moscow, Karlovy Vary (Czechoslovakia), London, Toronto, San Francisco, Chicago, and New York City. Through the early 1960s the American film industry remained wary of festivals; films that won festival awards did not necessarily do well at the box office, though a poor reaction at a festival might reduce the audience for a serious film. After 1965, however, distributor attitudes changed as investments increased in films for specialized audiences, particularly in “foreign” films backed by American companies, and favourable critical acclaim became a vital promotional aid. New festivals in Telluride, Colorado, and Park City, Utah (the Sundance Film Festival organized by the Sundance Institute founded by Robert Redford), took a pivotal role in the success of independent films since the 1970s. Interest in the festivals persisted, and they continued to increase in number and in size. By the early 21st century there were more than 700 scheduled annually across the globe.

Film festivals serve several functions. They provide an international marketplace where producers and distributors can exchange ideas, view films, and sign contracts. For example, the phenomenon of the international coproduction, so important to European cinema, arose at the Cannes festivals of the late 1940s. Festivals also provide an opportunity for fans to see popular stars and other celebrities. A further function of film festivals has been to provide a cultural rendezvous for those interested in the art and influence of the movies. Festivals often showcase new films or movements, such as when the Venice festivals of the early 1950s introduced the stunning accomplishments of the Japanese film industry, which had been previously unknown in the West. At other times festivals are sites of artistic and political contention. At the Cannes festivals of 1958 and 1959, for example, advocates and opponents of the French New Wave heatedly exchanged diatribes and manifestos. A decade later several key New Wave directors, most notably Truffaut and Godard, helped close the festival to protest government policies during the events of May 1968. The Venice film festival, generally deemed more serious and less commercial than Cannes, ceased its juried competition from 1969 to 1979 because of political strife.

Festivals are regulated by the Federation Internationale des Associations de Producteurs de Films (F1APF), which licenses those who want to award prizes. The competition that is associated with most festivals is in many instances, however, only a publicity device. Film screenings are often not even announced. The real purpose of the festival is to allow distributors to view and bid on the latest movies.

The best-known of all competitions, the Academy Awards, does not take place at a festival at all. The American industry, with its overwhelming control of the world's screens, long had virtually no interest in film awards except for the awards voted each year since 1929 by the Academy of Motion Picture Arts and Sciences. The academy, which represents various artistic and technical disciplines, originally intended its annual awards as modest peer-group citations within the tightly knit Hollywood industry. After media coverage created widespread interest, however, there was an increase in box-office revenues for winning films, and the Academy Awards, or “Oscars,” became valuable in merchandising. The prestige of the academy's artistic judgments, however, has failed to keep pace with its economic power. Serious students of film tend to place more credence in the awards of the New York Film Critics Circle (founded in 1935) and the National Society of Film Critics (1966), as well as in the oldest U.S. reviewing organization, the National Board of Review of Motion Pictures (1909).

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