"Only sick music makes money today." - Friedrich Nietzsche
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"Its presence in the public consciousness must endure for a long period of time -- genre fiction of any sort generally isn't considered to have any "literary merit" unless it's either 20 - 30 or more years old, or a work by an author who has previous works that have been accorded "literary merit".
That endurance, however, need not be because the work itself is a great story. Both _Frankenstein_ and _Dracula_ are accorded literary status, but neither is really a "great read". Both became much more well-known for the plays (and later, movies) that were based on them than for themselves.
(Indeed, there seems to be a faction of the literary community that believes that the harder a work is to get through, the more "literary" it is. Thus, the literary status granted such things as James Joyce's _Finnegan's Wake_)...
For a work to be taken as "literary", it's a great help for it to have a bad or bittersweet ending, *especially* if it's considered to be a "children's book". (Thus the common canard that "if you want to write a children's book and have it win awards, have the dog die at the end)...
The thing that tends to define "literary" fiction is that it is seen as having meaning beyond the story itself -- that through symbolism and allegory, the story becomes more than *just* the story. Sometimes, the allegory is "read in" after the fact -- for example, Tolkein flatly denied that _The Lord of the Rings_ was meant to be an allegory of the World Wars, but many critics have suggested that it is.
Much "literature" is clearly allegorical -- for example, Orwell's _Animal Farm_ and _1984_. Going back to the works I mentioned at the start, both _Frankenstein_ and _Dracula_ have been considered to be allegories. Those works of "literature" that aren't at least arguably allegorical are still seen as being *about* something beyond the story itself. Going back to _The Lord of the Rings_, without taking it as an allegory of the world wars, it's easy to read it as being about the loss of innocence, represented by the halflings (who are child-like in the beginning in many ways beyond the obvious one of their size) and their homeland."
(from The Gamebook List)