The way that fans of a particular genre are familiar with previous works, take pleasure in the tension between novelty and familiarity, evaluate intention and success in meeting intention in their search for the best, is nothing unique. Dedicated readers or playgoers do exactly the same. For what is dubbed literature, works that are not commonly marketed as specific genres, professsional academics are a major portion of such an audience. Because of their credentials, what they call literature is commonly accepted as being in some respect of genuinely higher quality. The notion that literature is the Good Stuff is exactly paralleled by definitions of science fiction that smuggle in notions about genuine scientific plausibility or the meaningful exploration of scientific issues in fictional form.
Sometimes stuff is called literature just because professors say so. For some reason, it is much more popular to rail against the professoriat. In fact, the marketing specialists have a great deal to do with labeling works as genre or literary or classics. Or mislabeling, as when science fiction and fantasy are lumped together. Certainly no publisher would bother to separate alternate history from alien invasion, even if both are separate genres in the science fiction mode. Perhaps it is easier to criticize professors than big corporations?
But it is still true that while genres are commonly select tastes, what is called literature includes not just the select tastes of the professoriat, but works that have stood the test of time. Things like the novels of Charles Dickens or the Sherlock Holmes stories have been grandfathered into literature with a capital L. The implicit suggestion that this is all merely snobbery is absurd and a little offensive. People tend to rate such things more highly not because they think they're supposed to but because they do in fact find them more engaging, more meaningful than simple genre works. People who are love Jane Austen, for instance, in fact tend to be defensive about imputations of snobbery. Further, genre works remembered over time are also grandfathered into literature with a capital L. All these are popular works in the best sense of the word, as well as being literature in the best sense of the word.
The main points of contention are in literary and dramatic criticism. The process of evaluating literature and drama highlights issues of the functions of literature and drama, both their ethical import and the implications about the reader or audience. First, there is the fact, confirmed by simple observation, that most literature is basically wish fulfillment fantasies of one sort or another. Either the reader gets off on the scenario, or he/she doesn't. Generally there isn't much more to be said. There is little to argue for there is nothing to praise or condemn. But there's no getting around it: If enjoying 24 means the viewer is getting off on torture, then that is going to be felt as a personal insult.
Second, there are the James Fenimore Coopers or Edgar Rice Burroughs, who create something new. There are the Star Wars which rearrange the old with new style. Such originality is uncommon. Often it is accompanied by noticeable deficiencies of another sort. The question of how to add up points for originality and how much they compensate for points lost for characterization or seriousness or literary style is both unanswerable and not worth answering. The tendency to rank things is a game. It may played like ice hockey on the internet or in some English departments but it's still a game. The difficulty is that criticism means examining what something is. One inextricable aspect means evaluating what it means to do, and whether it does it. Both of these are factually contentious. They also practically beg for the rating game to be played, because comparisons between works, authors and genres are part of critical evaluation.
The endless disputes are as absorbing and as meaningless as the BCS. Time and numbers are the best cure for fads, academic or otherwise, but not very helpful for current works. This is why Literature tends to seem to be rather embalmed. It's a sampling error. What can be safely guaranteed to works that aim high and succeed
Third, there is the criticism of genres. In evaluating what genres do, there is an implicit evaluation of what the fan of the genre. To like classic westerns is to like the racial subtext. This realization can be painful. It is in fact so painful that criticism is constantly mired in the refusal to accept simple observation; the willfully obtuse denial of the very existence of subtext; the obscurantist denial that generalization is possible; the cynical denial that objective discourse is at all possible, even about grammar, spelling, punctuations and the facts of history and nature! Seeing what is there, correct reading of subtext, correct generalization, objectivity to sum it up is never easy and never perfect. That doesn't mean it doesn't exist.
Fourth, there is the criticism that based on literary theory. This leads to all sorts of disputes between the popular and the academic.
One fundamental principle is, in a good work of fiction, all elements contribute to the desired effect. This is the kind of criticism that notes a science fiction story may be a western with ray guns, aliens for Indians and spaceships for covered wagons. Then it concludes that the science fiction is merely decoration. The further conclusion is that it is not true art. This assumes that decoration is not art, which simply isn't true. The idea seems to be rooted in some sort of commercial pragmatic, even when the art aims at some sort of spiritual epiphany. The attitude is that if it doesn't make money (contribute to the desired effect,) now, it's not worthwhile. The indifference in much commercial fiction to any concerns other than immediate sensation (the "money shot" is what they call it in the movies) is a prime example, showing that all literature, not just the best, is literature and has the same problems.
Another is the fundamental principle that some kinds of writing are objectively better than others. This should be the least contentious principle of all, but it is not. Nonstandard grammar, spelling and punctuation are usually bad, because they are less comprehensible. Demotic spelling, grammar and punctuation may be better because they are more comprehensible.
Another fundamental principle is that literature should model the good. This is contentious because what is good is in dispute. Also, some people like being bad.
A related fundamental principle is that literature should model the real. This is not opposed to modeling the real unless it is tactily assumed, either that only the perfect is the good, or that the real is bad. Some people explicitly dislike the real.
Another fundamental principle is that true art addresses something called the human condition, which is eternal. This is extraordinary since living memory tells us that it isn't.
A related fundamental principle is that true art addresses character. The notion is that human nature is reponsible for the human condition.
Possibly you might distinguish another fundamental principle but this is a fairly complete set revealing the discords that leave literary criticism a constant cacophony of arguments that miss confronting each other because they do not agree on first principles. Further, because these first principles are derived from deep seated attitudes about our culture they are usually unexpressed, apt to misunderstanding or even argued in bad faith.
What is generally regarded as literature, in the sense of being the best, is often marked by technical pragmatism at the expense of meaning; acceptance or rejection of the demotic for class reasons; ideological exaltation of unreasonable ideals: ideological denigration of real people; a denial of history, past and future; pyschological determinism denying the reality of society. All these of course are just restatements of the basic principle just listed. In their positive form, many people would instantly agree. They would strenuously argue my comments, particularly the observation that history tells us that times change, and the people didn't act the same.
The negative formulations would inspire huge dissent.
In the end, it comes down to, as said, why do literature and drama matter? The people who claim they like it for escape are never required to participate in the critical project, and would have no reason to. The ones who insist on the perfect validity of escapism almost invariably mean they want the conventional wisdom affirmed and strenuously object to anything else. The bland observation there's no arguing taste is only true for food. Otherwise, it is the sign of a liar.
What is conventionally regarded as good literature denies the reality of our existence as social beings, in favor of versions of the soul, usually called human nature. (The precise alias hardly matters.) It denies that there is a future that will be different, which is mad. It denies that the past is equally worthy of our attention. Plainly, all this is ideologically motivated. This kind of literature and drama is sadly impoverished, worse, self castrated. Standard literary criticism is the chief defender of this ideology.
Postscript on Style
Appreciation of style is first and foremost a matter of experience. This may not sound like much, but it is everything. With experience, the difference between an allusion and something borrowed from books becomes obvious. With experience, the difference between a simple style speeding a story or a difficult style stimulating thought becomes obvious. Style is usually something adults can appreciate. This is disheartening for the young at heart. But there you are.