I agree that she was amazing in this movie, but I kind of understand why she wasn't nominated for it. 1996 was a very strong year for actresses and they already nominated two actresses (three depending on how you define it) who were nominated for movies that weren't given high circulation. I love Kate and think that this is one of her top three perfomances (Heavenly Creatures and Eternal Sunchine were also incredible). The other two lesser known performances being Brenda Blethyn in Secrets and Lies and Emily Watson in Breaking the Waves. If I had to boot anyone out of the nominations, it probably would have been Diane Keaton for Marvin's Room, which was still good. There were a lot of really good acting jobs by women that year. Honestly, the two other lesser known performances were astounding and if I had to rank, they were better than Kate that year. The academy has a tendency to not notice some of the best things though. The War Zone, Before Sunrise and The Sweet Hereafter never got their due recognition from the Academy (The Sweet Hereafter did get a director nom, but that was really the best movie that year and got As Good as it Gets, The Full Monty, and Good Will Hunting were all nominated instead). They also seem to be way too skewed against comedies. Then again, when they do recognize great comedic performances, they get criticized so I kind of get why they do that too (there are still theories that Marisa Tomei didn't actually win).
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