The lack of Academy Awards attention is not that amazing given the historical context.
First, this film existed almost entirely outside of the Hollywood mainstream. Granted, United Artists did invest a significant amount of money for the time (well over a million dollars) in co-funding The Good, the Bad and the Ugly—on the basis of the first two films' stunning success in Italy and elsewhere in continental Europe. (A Fistful of Dollars and For a Few Dollars More emerged without a cent of Hollywood capital, although United Artists eventually purchased their distribution rights for the English-language releases.) Overall, though, The Good, the Bad and the Ugly constituted an Italian film made in Spain with the only obvious links to America and Hollywood being the presence of the three leading actors. Furthermore, the film hit US theaters a full year after it premiered in Italy in late December 1966.
Second, prior to the 1990s, Westerns—whether American, Italian, or of any stripe—received little critical prestige. Most critics and Academy voters considered them lowbrow entertainment generally unworthy of serious evaluation or high critical praise. Only one Western prior to 1990 had ever received the Best Picture Academy Award (Cimarron in 1930), and John Ford—the genre's most famous director—famously never received a Best Director Oscar for any of his Westerns. (He did receive the award for five of his non-Westerns.)
Third, the Dollars films, including The Good, the Bad and the Ugly, were largely censured by American (and to some extent British) reviewers on the basis of their violence (which was shocking for the time), their amorality, their nihilism, and their discarding or undercutting of traditional Western themes and styles. Among American reviewers, a strong element of nationalism or cultural pride factored into their evaluations as well, as they implied that the Italian or European filmmakers had expropriated cinematic and mythological territory on which they had no rightful claim and that they knew nothing about. As for the American actors, most notably the previously nonthreatening Clint Eastwood (who had starred for years on the defunct Western TV series Rawhide), many or the reviewers more or less condemned them for 'selling out' to these supposedly exploitative, mindless, and misguided foreign filmmakers.
For instance, in reviewing For a Few Dollars More in the Washington Post on May 12, 1967, Richard Coe offered the following perspective in a review titled "Distorted View Of the West":
... For violence, violence, violence from initial shot to fadeout — mindless, bloody, deadly violence — is with us throughout.
... The "Dollar" films ... come out as Europeans' ideas of what our West was like and, concomitantly, what we are like. I don't know which is sorrier, their notion of us or their pitiable ignorance.
Here are some snippets of reviews for
The Good, the Bad and the Ugly:
Variety:
A curious amalgam of the visually striking, the dramatically feeble and the offensively sadistic.
Renata Adler,
New York Times:
Must be the most expensive, pious and repellent movie in the history of its peculiar genre.
Dilys Powell,
Sunday Times (UK):
Presumably the savagery is another sign of the times.
David Wilson,
Guardian (UK):
Deaths are numerous, violent and lingered on — and the Western itself is one of the victims.
Dick Richards,
Daily Mirror (UK):
Those Italian Westerns with Clint Eastwood chewing his cheroot and acting with as much expression as a man with neuralgia are really the bitter end.
So ... all that context needs to be considered. These movies were about the last that would have ever been considered for the Academy Awards in any category, even if they were ahead of their time (or abreast of the undercurrents bubbling underneath the Anglo-American cultural mainstream) and would be better appreciated for their radical revisionism and aesthetic brilliance in the years ahead.
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